CHAPTER THREE: TABLE OF CONTENTS
Learning Objectives
Introduction
Section 1: General Ledger Module Theory
L.O. 1 - Controlling vs Subsidiary
L.O. 2 - Stand - Alone vs Integrated
L.O. 3 - General Ledger vs General Journal
L.O. 4 - Main File Fields
L.O. 5 - Changes to the main file
L.O. 6 - Data Entry
L.O. 7 - General Ledger Reports
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3
4
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4
5
6
8
9
10
Section 2: Business Works User's Guide
L.O. 8 - Steps to perform data entry and complete accounting cycle
15
Section 3: Student Application
L.O. 9 - Enter data for three companies
SUSY'S BALLOON SERVICE
Summary
Key Terms
Review Questions
Self Examination Questions
DR. DETAIL PHD
ABC COMPANY
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FIGURES
Figure 3.1
Figure 3.2
Figure 3.3
Figure 3.4
Figure 3.5
Figure 3.6
Figure 3.7
Figure 3.8
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Stand Alone vs Integrated General Ledgers
General Ledger and General Journal
Hierarchy Chart of Accounts
Fields in Journal Entry Window
Journal Entries Pull Down Menu
Post to Journal Screen
Type of Entry Screen
Voucher # Screen
4
5
7
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GENERAL
LEDGER
3
LEARNING OBJECTIVES
After completing this chapter the
student should be able to:
1. Describe the function of the
General Ledger and
subsidiary ledgers.
2. Explain the difference
between a stand alone and
an integrated General Ledger
3. Explain the difference
between a General Ledger
and a General Journal.
4. Identify the fields of the main
file (Chart of Accounts).
5. Make changes to the main
file.
6. Locate the fields for entering
the daily transactions and
adjustments.
7. Explain the purpose of the
various General Ledger
reports.
8. List the steps required to
enter data for the accounting
cycle using the General
Ledger module.
9. Enter data of a given
problem using the techniques
learned in this chapter.
The General Ledger is the collecting point of all the information from the other
modules. If you learn the General Ledger first, all the other modules will be
easier. The user can learn the basics of the program in the General Ledger,
which can then be transferred to the other modules.
The General Ledger is the primary module and all the other modules are
subsidiary modules. The detail data is retained in the subsidiary modules with
the summary data being transferred to the General Ledger (G/L), much the same
way as the manual method. For example, each line item in the Cash Receipt
Journal is entered into the customer’s account in the Accounts Receivable (A/R)
Ledger module while the totals of the journal are entered into the Cash and A/R
accounts in the G/L when integration occurs.
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INTRODUCTION
================
3-3
SECTION 1:
GENERAL
LEDGER
MODULE
THEORY
________
________
L.O.1
Controlling
Vs. Subsidiary
The Accounts Receivable, Account Payable, and Merchandise Inventory
accounts in The General Ledger module are called the controlling accounts.
The detail of all the customer/vendor/item balances in each module is carried in
a separate or subsidiary ledger. The controlling and subsidiary amounts must
always equal each other. In some cases the program will not allow data entry
until these amounts are corrected.
L.O.2
Stand-Alone
Vs. Integrated
There are two approaches to the G/L module. One is to treat it as a standalone module that can perform all the necessary functions by itself. The other
is an integrated G/L. Integrated means the modules talk to each other or put
information into the G/L module through summary journal entries from the
subsidiary modules. Figure 3.1 illustrates the stand-alone and integrated
approaches. Business Works is an example of an integrated approach.
When an account is a controlling account, no general journal entries using this
account should be made. Only subsidiary ledger total and the amount of the
controlling account balance does not agree should there be a correcting journal
entry.
FIGURE 3.1
Stand-alone vs.
Integrated
General Ledgers
STAND ALONE
General
Ledger
Cash
Receipt
Enter
Sales
Invoice
Cash
Disbursement
Reports
Purchase
Order
System
Posting
INTEGRATED
A/R
Module
Cash,A/R, Discounts
S
U
B
S
I
D
I
A
R
Y
A/P
Module
Cash,A/P, Assets, Expense,Disc
General
Ledger
Module
Cash, Salary X, Tax X,
Taxes Payable
P/R
Module
L
E
D
G
E
R
S
Purchases, Items, Stock
Inventory
Module
(Periodic)
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3-4
A stand alone G/L would be used by a company on a cash or modified cash
basis. It would include cash receipts and cash disbursements journal and allow
checks to be written within the G/L module. It could even include a cash sales
journal to record the daily totals from the cash register.
Stand- alone
If the company has only a few customers and vendors, use separate account
numbers to keep track of individual balances. For example, If Accounts
Receivable was 110, account number 1101 could be named A/R –Smith, 1102 A/R-Jones, etc. All sales and cash receipts would use the number for each
customer with the total A/R to be summarized in 110. A/P would work in the
same manner but with vendors instead of customers. This is an example of
manipulating the system requirements to meet the needs of the company.
An integrated G/L uses other modules to enter the detail transactions. When
transactions are entered into the other modules they must read the Chart of
Accounts from the General Ledger. These transactions are posted to the
accounts in the General Ledger either at the time of the transactions entry, at
mid-month, or at the end of the month. Usually the posting will include only the
totals for each account. For Example, in the A/P module, if there were three
transactions to the office supplies expense account for $120, $150, and $130 the
posting to the office supplies account in the G/L would be one figure for $400. A
reference to the particular module providing the summary data would be listed in
the G/L account so you could locate the detail transactions.
Integrated
Some programs allow the user to go from stand-alone one month, then to
integrated the next month. This decision must be made at the beginning of the
month before any transactions are entered.
It would be wise to start with the stand-alone G/L to get to know the program.
When the user is comfortable with the program, it is then time to change to the
integration feature.
Sometimes there is confusion in understanding the difference between the
General Ledger and then General Journal. The General Journal contains the
journal entries that are entered for the month. Each entry is given a number by
the program. The General Ledger is where all this information is collected. It
lists the beginning balance, all the transactions for the month (sometimes for the
year or a specified period), and the ending balances, all in account number
order. Figure 3.2 shows examples of entries in the General Ledger and General
Journal.
General Ledger
L.O. 3
General Ledger
Vs. General
Journal
FIGURE 3.2
General Ledger and
General Journal Number
Account
$Beg. Balance
Date
XXXX
XXXX
Reference
XXXXXX
XXXXXXX
Dr
Cr
XXXXX
XXXXX
$End. Balance
General Journal
Account #
Acct Name
Account #
Acct. Name
Reference (Description)
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DR
CR
3-5
L.O.4
MAIN FILE
Account
Number
The main file of the General Ledger is the Chart of Accounts. Basically, the
Account Number and Account Name are the main fields. Other fields that could
be included are Account Type, Beginning Balances, Current Balance, and prior
year balance.
One of the main functions of accounting is to collect data into accounts so the
company knows how the money was spent and for what items. That is why the
account number is the key number for entering transactions. The system will
read the Chart of Accounts and then supply the account name to verify that the
correct number was entered. It is important that the selected program
automatically gives the account name when the account number is entered so
the account number can be verified. Many transactions are entered into the
wrong account because of one mis-entered number.
In general, the account number can be from 3 to 5 digits. However, some
companies use as many as 10 digits. The last two digits usually represent
departments. For example, a company has an ice cream department, a topping
department, and an ice cream equipment department. The account number for
supplies expense—ice cream would be 6521. The last digit, 1, would
represent the ice cream department. The account number for supplies
expense—topping would be 6522. If 5 digits were available, a more elaborate
structure with the number of departments could be set up.
Some programs have a simple Chart of Accounts giving the numbers for
assets, liabilities, owner’s equity, sales, cost of goods, and expenses. This is
called a Standard Chart of Accounts. There might be a few adjustments in
account numbers but it is easier to set up with a simple Chart of Account. Other
programs give you a chance to create your own structure or hierarchy of
accounts and let you identify each level of account.(See the structure in Figure
3.3) Each level must be identified as a type, such as heading, subheading,
detail, subtotal, or total. Detail accounts would be the only accounts able to
receive transactions.
The hierarchy type of Chart of accounts gives you more flexibility to structure
your statements the way you want but the setup is more complicated. If the
account is not identified as the correct type or if there is one level missing, if
could create a big headache in one of the first steps in computerizing your
accounting system.
Account Name
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The account name or description can usually be 25 to 35 characters. This
limitation might cause you to shorten the manual name. If using the hierarchy
system you will need to add the names for the headings, subheadings,
subtotals, and totals.
3-6
Figure 3.3
Hierarchy Chart of
Accounts
Hierarchy Type of Chart of Accounts
1
ASSETS
11
Current Assets
111
Operating Cash
1111 Bank of America
1112 Wells Fargo-Payroll
1113 Wells Fargo-Petty Cash
11111 Total Current Assets
12
121
1211
122
1221
123
1231
124
12111
FIXED ASSETS
Equipment
Accumulated Depreciation-Equip
Automobile
Accumulated Depreciation-Auto
Building
Accumulated Depreciation-Building
Land
Total Fixed Assets
19999
TOTAL ASSETS
Heading
Subheading
Posting -Detail
Posting -Detail
Posting -Detail
Posting Detail
Subtotal
Subheading
Posting-Detail
Posting-Detail
Posting-Detail
Posting-Detail
Posting-Detail
Posting-Detail
Posting-Detail
Sub Total
121-124
Total 1xxx
The account type can be in three formats. One accounting system format
requires the accounts to be listed by where they appear in the fundamental
accounting equation, such as Assets, Liabilities , Owner’s Equity, Revenue, Cost
of Goods Sold, and Expense. The second format lists them by what financial
statement they appear on, such as Income/Expense, Balance Sheet, or Retained
Earnings. The third, as described previously, has the account type by where the
account appears in the Chart of Accounts hierarchy: subheading, detail, or total.
Account Type
Beginning, Initial, or Opening Balances are the dollar amounts accumulated in
the accounts for an existing company. If the data is being set up in the first month
of the fiscal period, all that needs to be entered are Assets, Liabilities, and
Owner’s Equity accounts. However, if the data represents months during the
fiscal period, Income and expense accounts will also need to be added.
Opening Balance or Beginning Balances are entered in two basic ways. One
way is to create a journal entry in the General Ledger. This is nice if you are at
the beginning of a fiscal period. It tends to be lengthy and tedious if you must
also add the Revenue (Income) and Expense accounts.
Beginning,
Initial or Opening
Balances
The other way is to have a special command or submenu to enter the opening
balances. First, enter the account number, the balance in the account, and
whether the balance is a debit or credit. Once all accounts are entered and the
debit balances equal the credit balances, the beginning balances are accepted.
In both systems you cannot change the balances once they have been entered
and accepted. Accepting the balances means either using the closing date in
which they were entered or saying ”yes” to the prompt that asks if the balances
are to be accepted. Once accepted they cannot be changed without setting up
the accounting system again. This method is easier and fewer errors are made.
If the program has the capability of showing comparative statements, prior years’
balances will need to be added. These can be entered much the same way as
beginning balances but with a different entry option from the menu, or by
entering the balance in a different field of the Chart of Accounts entry screen.
The balance for the prior year is kept in memory to be supplied when
comparative statements are desired. When the current year is closed the
balance in these accounts will become the prior year balance.
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Prior Year
(historical)
Balances
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As stated in previous chapters, in any main file the activities are Add, Modify,
Delete or View. It is always wise to do this type of housekeeping (editing) chores
in the beginning of the month so the main file is up to date. You can always
make these changes during the month as they are identified.
A company adds new accounts when it is necessary to identify certain groups of
expenditures. When adding an account, beginning balances will not need to be
entered because a new account should not have any accumulated cost. Be
careful if using the hierarchy method to put it in the correct order then double
check that the account appears on the proper financial statement.
The account name can only be changed or modified. If it is necessary to change
the account number, it must be deleted, then added again with the new number.
If there is a balance in the account when changing the account number, the new
account must be opened. The balances must be transferred from the old
account to the new account. In the next month the old account should be
deleted.
DELETE
L.O. 5
Changes to main
file
Add
Change/Modify
Accounts can be only deleted if the following conditions
exist:
1.
2.
3.
There must be no transactions for this account.
There must be no balance, either current or
historical, for this account. In other words, it needs
a zero balance.
The account number cannot be a controlling
account or a specified account for the configuration.
Note that in some programs if an account is deleted it
will still how up in the Chart of Accounts for the reports
for the current month because if was active during that
month. It will then be removed from the reports in the
following months if there are no historical balances.
View
Sometimes a look at the Chart of Accounts will be all
that is needed to answer the question at hand, be it, “do
we have an office furniture account?” or “ What is the
account number for gasoline expense?” You can either
view the Chart of Accounts or print a report. The display
of the main file Chart of Accounts could include just the
name and number or it could also have the beginning
balance, list each transaction, and give the ending
balance.
Always keep an updated hard copy of the current
chart of accounts close by for reference purposes as the
transactions are entered.
"On The Fly"
“On the fly” is the ability to add a file while in the data
entry mode. Selecting the maintenance command will
place the data entry mode in a back window on the
screen or on the toolbar. Addition of the new file can
then be made. Once the file is added simply click on the
data entry screen or the icon on the toolbar to return to
the same field in the data entry mode. The new file is
now available. This ability reduces the amount of
frustration in entering transactions.
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3-8
Without on-the-fly ability you would have to take the
following actions:
1.
2.
3.
4.
5.
6.
Stop the data entry.
Select the file maintenance command.
Add a record to the file.
Exit the file maintenance.
Reenter the Data Entry command.
Enter the transaction with the new file item.
An example of on-the-fly ability would be the process of
entering a cash disbursement. Suppose several
transactions have been entered. The next transaction
requires a new account that was not entered previously.
The account is added and then used with the current
transaction.
Data Entry
(Monthly
Transactions)
L.O.6
_____
JOURNAL ENTRIES
The Journal Entry is the main transaction in the General
Ledger, especially if it is integrated. The fields for the
journal entry are account number, account name
(automatically entered by the program), debit or credit,
amount ($), then the reference for this entry. The
reference could be as little as 25 characters or as many
as for lines. Most accountants prefer more characters
for the reference, as 25 letters do not give adequate
room to enter the full description of the journal entry.
When entering the journal entry a few fields use a
default or assumed value. For example, if a debit is
entered, most programs will assume the next entry is a
credit. If it is another debit, use the shift tab to go
backwards or click on the field to enter the debit amount.
This will erase the credit automatic amount. This is
called overwriting.
Another assumed value is the amount. If the first
line of the journal entry is a debit for $100, the program
will assume the next line will be a credit for $100.
Again, overwrite the dollar amount if it is a compound (or
more than one debit or credit) entry. An accounting
program will not allow an unequal amount for a journal
entry. If there is a total debit of $100 there must also be
a total credit for $100 or else the journal entry cannot be
entered.
Some programs have a special command to allow
for unbalanced journal entries to help solve some
problems in controlling accounts such as Accounts
Receivable and Accounts Payable. Consult your
instructor should you have a problem.
AUTOMATIC
(REOCCURRING)
JOURNAL ENTRIES
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Automatic or reoccurring journal entries are included in
some programs. Automatic journal entries are entries
that will be occurring each month with the same amount
and accounts. Adjusting entries such as depreciation,
and accrued salaries are usually the most common
automatic journal entries.
3-9
The first step in using automatic journal entries is to
build a file of all the necessary entries. The program
should have a special command to make a list of all the
entries. It should also be possible to modify and delete
these entries. Once the entries are entered it is
important to print a list to make sure all the entries are
correct. At the end of the month all that is necessary to
do is to enter the command that will process the journal
entries. In processing the entries, the program enters
the entries into the general journal, then assigns journal
entry numbers to each of the automatic entries starting
with the number of the last regular entry. With one
command several entries have been entered without
having to enter them one at a time.
Business Works has this capability under Entries Recurring Entries.
REPORTS
L.O.7
The most common reports that can be printed from most
General Ledger modules are discussed here.
CHART
OF ACCOUNTS
A Chart of Accounts is a list of the accounts. This
report gives the account numbers to use when entering
transactions.
TRAIL BALANCE
A Trial Balance provides balances in each account. It
shows that the debits equal total credits.
This report is helpful in giving the total amount spent or
received in that particular account for the month and
year to date. It is also helpful in locating possible errors
and the effect of the correction.
GENERAL LEDGER
DETAIL AND
SUMMARY
The General Ledger gives the account’s prior month
beginning balance, a list of all the transactions for each
account for the month, and the ending balance.
Sometimes the program will allow the General Ledger to
list as much as a year of transactions. However, this
function takes up a large amount of space on the data
disk. It also makes the report hard to read because of
all the detail included.
`
This report can be printed for the entire ledger, for a continuous group of
accounts, or for one account. Use this report to see if a particular transaction
has been entered or to see if a correction has the desired effect.
The General Ledger can be entitled General Ledger or be the detailed Trial
Balance.
ACCOUNT DETAIL
REPORT
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The Account Detail Report is just what its title indicates—a report that shows the
detail of an account. It usually lists the beginning balance, every debit and
credit, and the new ending balance. It is basically a portion of the General
Ledger detail. It is helpful if you want to see what transactions have affected a
particular account.
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A good use of an activity report would be to see the balances in certain
accounts. For example, the cash account in a stand-alone General Ledger could
be used to provide the data for a bank reconciliation. An activity report for the
Suspense Account prior to month-end closing could be used to verify the zero
balance or to determine transactions requiring coding.
GENERAL JOURNAL
The General Journal lists all the journal entries for the month. This report can be
used to find the journal entry number if the entry is to be deleted, to see if all the
necessary entries have been made, and to review journal entries that were
entered.
FINANCIAL
STATEMENTS
The standard financial statements that can be printed are the Balance Sheet,
Owner’s Equity, and Income Statement. Sometimes a Cash Flow statement is
included. These statements can compare the current year balances with the
prior year’s Comparative Statement or compared to the budget. The Income
Statement can also be printed by departments. Another way the Income
Statement can be printed is as a percentage of sales. Depending on the reports
needed an appropriate program can be selected that will provide these reports.
INCOME
STATEMENT
The Income Statement is the first report to be printed because the net
income(loss) is used to update the balance of the Capital account for the
Statement of Owner’s Equity. The new Capital balance is entered in the Balance
Sheet.
Some low-level accounting programs provide only the year-to-date
revenue/expense balances. Others give month-to-date and year-to-date figures.
Still others provide a percentage of sales figure. The user must configure the
company data to reflect the type of income statement to be printed.
If the Income Statement does not appear to be correct, check the company
configuration and the hierarchy of accounts. The accounting program uses the
accounts specified in the configuration to know where to put the difference, or
profit/loss, between the revenue and expense.
The Cost of Goods Sold section can be included as an option for the Income
Statement. This option is used for companies with inventory and purchases as
opposed to service companies.
The Income Statement should be viewed on the screen before printing the other
reports. If something is wrong, it can be corrected before wasting time printing
incorrect reports.
BALANCE SHEET
The Balance Sheet shows the assets, liabilities, and owner’s equity of a
particular company. Whether to list the classifications with sub-classifications is
determined in the company configuration menu. Some programs define the subclassifications and some allow the user to define them. If the company
subdivides its assets and liabilities in a particular way, the ability to change the
configuration is necessary.
The Statement of Cash Flow informs the reader what activity occurred in the
cash account. Each transaction that occurs in the cash account is placed in one
of three categories: OPERATING, INVESTING, or FINANCING. Net Income
starts the operating category and changes to current assets and current liabilities
are placed in this category. Other categories can be checked by asking the
questions: Did the owner invest additional cash? Get a loan from the bank? Pay
off a loan? Sell or buy assets? It is important to provide the system with the
proper cash account number as it will look at this account to provide the detail for
the report.
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STATEMENT
OF CASH FLOW
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The Cash Flow Statement or Statement of Cash Flow is a required report under
generally accepted accounting principles. Be sure to check that the selected
program has this capability. This report is currently included in the Business
Works Program.
Basic and high end accounting programs allow the user to create custom reports.
The user needs to add the fields to be included in the report, decide how it will be
viewed, the name of the report and how the data will be sorted. The custom
reports allows the user to make the program fit the company.
CUSTOM REPORTS
Posting is the process of transferring the data from the journals to the accounts
in the General Ledger and calculating a new balance in the account.
POSTING
In the manual method of accounting, posting means copying the totals from the
journals (Cash Receipts, Cash Disbursements, Sales, and Purchases) and
placing them into the correct accounts in the General Ledger. The next step is
getting a new up-to-date balance in each account by adding or subtracting all the
transactions from the beginning balance. Doing this process manually takes a
great deal of time and has the potential for many errors. The computer’s
greatest help is to do this process automatically with just the selection of the
proper command.
With the manual method, all the transactions are carried in the ledger throughout
the entire year. Some computer programs require that the prior month’s
transaction be dropped due to lack of space on the hard drive. However, most
programs will allow 2 years of data to be kept on the hard drive. The two years of
data provide a historical report for the account(s) with all the transactions listed.
To perform the posting in a Stand-Alone General Ledger all that is needed is to
select the command “Post the General Ledger” The computer will then perform
the posting process without any additional input from the user.
In an Integrated General Ledger the other modules must be posted to the
General Ledger module before the General Ledger is closed.
Be careful not to post or close the General Ledger for the month until all the
other modules are posted and everything balances. If errors are still in the
accounting system after posting it is much harder to correct the next month.
There are two types of posting or closing. One is month end, where the revenueexpense (profit/loss) for the month are determined. The other is year end, where
not only the profit/loss is determined but the Income Statement accounts are
closed.
MONTH END
The month end is performed at the end of each month once all the transactions
are entered into the batches and the correct reports are printed. The current
month activity field is cleared of information when posting the month end. The
year-to-date data is updated by the current month activity.
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3-12
YEAR END
The year-end is performed after the end-of-month posting is finished. At year-end
a sole proprietorship would close revenue and expense accounts to income
summary and then income summary account to Capital. A corporation would
close their revenue and expense accounts to the Retained Earnings account
bypassing the income summary account. Most accounting software programs use
the title "retained earnings" to represent the closing account. This provides the
flexibility to handle the different company organization. There are four activities for
year end closing (1) determine the difference between the revenue and expenses
(net income), (2) zero or close the revenue and expense accounts to the income
summary or the retained earnings account, (3) if not a corporation, close income
summary to the capital account and lastly,(4) close drawing or dividends to capital
or retained earnings.
Determined before performing year end if the End of Year command will perform
one or all of the four activities.
User’s Audit Trail
An audit trail in a computer system lists all the activities that have been performed
by the users. For example, it will show when a batch has been posted, or when
the problem occurs. The user can view the list of commands entered and can
determine what to do to correct the problem. An audit trail is fast becoming a
standard feature on all accounting programs.
For Business Works the audit trail includes all the activity for the program not for
the company.
Error Handling
Errors can occur at any time with any computer. When errors occur they must be
corrected or reversed.
The following error types have special meaning when correcting transactions.
Correction
Changing a field. Some programs put restrictions on the fields
that can be changed. Others allow all fields to be changed.
Error checking
Void
Allows verification of each field immediately after entry.
Usually found in programs using immediate access.
Cancels the entry by preparing a reversing entry.
Delete Removes the transactions though it was never in the system. The
accounting profession does not like this option because the audit
trial is interrupted.
The following are steps to help the user identify and correct transactions.
Determine and WRITE DOWN what the entry should have been, using your
accounting knowledge: What are the debits and credits?
1. Write down the correct and incorrect entry.
2. Print the General Ledger Detail Report to see how the entry has affected the
accounts.
3. Using the manual method, figure out what the balance in the account should
be.
4. Make a correcting entry in the G/L module if the A/R and /or A/P module is not
affected. It is always best to reverse the incorrect transaction (make the debit
a credit and the credit a debit) and reenter the correct entry because this
provides a good audit trail. Void or delete the entry in the A/R and/or A/P
module if the error affected these accounts.
5. Display the General Ledger Detail Report to see if you have corrected the
error.
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3-13
Error can occur in any processing environment and must be corrected or offset
(the net correction). You are expected to correct your errors in this project. The
idea of the project is not to complete every step without making any mistakes.
Rather, it is to complete the project and properly correct or handle any mistakes
that do occur.
There are two basic types of errors, each requiring different handling: (1)
Account distribution errors happen when the wrong account is used in the
transaction. (2) Open item errors, probably the most varied, are errors that
happen when inputting transactions in accounts receivable and accounts
payable.
The simplest error to deal with occurs when something is coded to the wrong G/L
account. For instance, someone entering an accounts receivable invoice might
post the credit to Purchase, rather than Revenue. In this case, there is not an
error in the A/R subsidiary ledger (open item file)—it holds the invoice amount,
date, customer code, etc. So the only error is in the Sales Journal, or it has
“moved on” to the General Ledger if the Sales Journal has been posted already.
ACCOUNT
DISTRIBUTION
ERRORS
The correction, then is simple. Use a General Journal entry to debit Purchases
(thereby negating the mistake) and balance it with a credit to Revenue, which is
where the credit should have gone in the first place. Use a description for the
Journal Entry that clearly indicates why the entry was make,
A more complicated option that has the same effect is 1) reenter the invoice
correctly, and (2) enter another invoice using the same accounts as the incorrect
entry, except with a negative amount (this reverses the incorrect invoice).
Although this clutters up the open item file a little it has the advantage of keeping
all sales transactions in the Sales Journal, and offers a clearer audit trail.
An error made in a journal entry can always be cleared up with another journal
entry. Note: If you made an entry backwards (you entered credits as debits and
debits as credits), don’t forget that it will now take two correct debits and two
correct credits to record the entry. The first set just offsets the wrong entry. The
second set records it correctly.
Unlike the distribution error just discussed, some errors do affect information in
the subsidiary ledger, which is referred to as the open item file. When a sale
occurs an item is placed in the accounts receivable—an open item. It is closed
by the customer paying for the invoice. When a purchase invoice is entered, it
places or opens an item in the accounts payable. It is removed by paying for the
purchase invoice.
Since open item errors occur in the A/R and A/P modules, this subject will be
discussed in those chapters.
6/30/2003
OPEN ITEM ERRORS
3-14
Section 2: Business Works- User's Guide General Ledger
JOURNAL Entries
Journal entries are used to enter transactions directly into the General Ledger. Most entries are
summarized and posted from journals in subsidiary ledgers: purchases, cash disbursements, cash
receipts, sales, and payroll. Some transactions do not fit into any of these categories, such as
transferring costs from one account to another and adjusting entries, so the General Journal in the
General Ledger is used.
There are several steps to record a journal entry:
1.
Enter the journal entry(ies) using the entry program.
2.
Print a list of all the entries.
3.
Use the change routine in the entry program to correct errors in any of the entries.
Remember, sometimes journal entries are made in a subsidiary module and other times these entries are
entered directly in the General Ledger Module.
Figure 3.4 Fields in the Journal Entry Window
Standard, recurring, correcting, reversing, edit
description, void
Type of
Journal
Date of
Transaction
Journal Entry
Number
Actual
Journal Entry
6/30/2003
3-15
Entering a Journal Entry
1.
Select General Ledger Module.
Figure 3.5
Journal
Entries Pull
Down Menu
2.
3.
4.
Select Entries from Pull Down Menu.
Select Post to Journals
Post to Journals Screen appears
Figure 3.6
Post to
journal
Screen
5.
6.
7.
8.
9.
10.
11.
12.
Check transaction date. Change if incorrect.
Enter voucher # or reference.
Select the down arrow under account number to get a selection of accounts. Highlight the
account to be debited then double click. To add an account on the fly simply enter the new
account number. If the program can't recongize it will ask if you want to add the account.
Respond yes and you will be able to enter the fields of an account.
Enter the debit amount and press enter.
Enter the next accounts #, press enter.
The credit amount is automatically entered. If you want to enter anouther debit, press shift +
tab to go back to the debit. Enter the debit amount, this will eliminate the automatic credit.
Press enter and this puts the amount in the body.
Enter the credit amount.
To delete a line in the body of the journal entry you need to highlight the incorrect line, press
the delete key.
6/30/2003
3-16
13.
14.
15.
To add a line enter a new account # and the amount.
Double Click on Post
Close-bring a journal detail report to the screen to double check your entry.
Steps to change a Journal Entry
1.
Select the down arrow to select the type of correction.
Figure 3.7
Type of Entry
2.
Select the down arrow in Voucher Ref # field. This will show you the posted journal entries to
choose.
Figure 3.8
Voucher #
(Also JE#)
3.
4.
5.
6.
7.
8.
9.
Make the necessary changes.
Select the POST button.
After you have entered the rest of the journal entries print the General Journal.
View the Trial Balance-Summary.
Enter the adjusting entries.
View the Trial Balance - Summary --- this is the adjusted Trial Balance.
Print Financials - Income Statement and Balance Sheet
6/30/2003
3-17
Steps to Void a journal Entry
A journal entry cannot be deleted but must be voided to maintain the audit trail. To void a journal entry
do the same method as changing the entry but select the type of entry as VOID. See Figure 3.7 above.
Then enter the journal entry number.
Close G/L - Month Note: Don't worry about the initial account balance note. It is because Susy is a new company. This
note will show up for Dr. Detail but not for ABC Company.
1.
Select G/L - Close
2.
Select Close Current Month.
3.
"Closing the month" note, Select OK.
4.
Confirm the closing by typing the month: JULY
5.
Don't worry about Final Audit Trial note: It just seems the program wants to give you this
message.
6.
Yes to continue.
7.
Message about Future, Current, Reversing Entries. Be sure all your entries are current and not
in future periods.
8.
Print the Income Statement to show the month is closed.
6/30/2003
3-18
Name _____________________________
Date_____________
Susy's
Balloon
Service
Cover Sheet
Chapter Three
Order of Reports to be attached :
Journal Entry Batch Report for all batches
Journal Detail Report 7/31
Trial Balance- Summary
General Ledger- Detail
Income Statement 7/31
Balance Sheet 7/31
Income Statement date 8/01
Did you make a back-up/archival copy?
6/30/2003
3-19
Section 3: Student Application: Susy's Balloon Service
Basic Instructions
1. Enter the July daily transactions and adjusting entries as Journal Entries.
Use the 2002 year .
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Print the Journal Report to the screen to review it for accuracy.
Correct any incorrect Journal Entry by changing or deleting.
Print a Summary Trial Balance.
Print an Income Statement- Budgeted. Be sure you have a 7/31 date.
Print a Balance Sheet. Be sure to use the end of month date 7/31 or your report numbers will be
incorrect.
Print a new Chart of Accounts with all the active accounts.
Make an archival disk.
Print the General Ledger (Trial Balance-Detail)
Close the month.
Print an August Income Statement that shows July was closed. Zeros should be in the current period
column.
Compile all reports and attach them to the cover sheet in the order given on the cover sheet.
OVERVIEW OF JULY TRANSACTIONS:
Original Investment
a. July 1, 2002 Susy Casey invested $1,000 cash, $500 equipment, $4,000 truck.
Purchased Supplies with Cash
b. July 1, 2002 Purchased decorating supplies from Target Store for $65, Check #101
Sale on Account
c. July 2, 2002 Susy decorated for Marshall’s Open House, $1,000 Net 30.
Purchases for Cash
d. July 10, 2002 Purchased balloons and string for resale from Balloons, Inc., $250, Check #102
(use Balloons & Accessories Expense).
Received Payment on Account
e. July 12, 2002 Received $1,000 from Marshall’s, Inc., Check #15123.
Owner Withdrawals
f. July 15, 2002 Susy withdrew $300, Check #103.
Purchase on Account
g. July 15, 2002 Purchased balloons for resale on account from Carbonics Co, $500 2/10 net 30
Cash Sale
h. July 16, 2002 Decorated for Smith Wedding. Received full payment at the end of the day,
$750, Check # 760.
Paid Vendor on Account
i. July 30, 2002 Paid Carbonics, Check #104.
Owner Withdrawals
j. July 31, 2002
Adjusting entries
k. July 31, 2002
l. July 31, 2002
m. July 31, 2002
6/30/2003
Susy withdrew $300, Check # 105.
Truck Depreciation, $100.
Equipment depreciation, $75.
Decorating supplies on hand, $25 (adj. $40).
Add Supplies Expense Account 512
3-20
STEP BY STEP INSTRUCTIONS:
Instruction 1: Enter July Daily Transactions
Original Investment
a. July 1, 2002 Susy Casey invested $1,000 cash, $500 equipment, $4,000 truck.
2002
07/01/02
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
From the General Ledger Main Menu select Entries from Pull Down Menu.
Select Post to Journals
Post to Journals Screen appears. See above.
Check transaction date. Change if incorrect.
Enter voucher # or reference. After the first JE it will increase the number by one.
Enter 111 in the Account field. Press enter. Cash account appears automatically. Enter 1000 in
the debit field and press enter.
The line you just entered has been entered in the white square below the line.
Enter the next account 150. Press enter. Enter the 500 in the debit field. Press enter This line
now appears with the cash line.
Enter the next line for account 160 in the same manner.
Enter 311 and press enter. The credit amount should automatically entered.
Double Click on Post.
The screen is cleared ready for the next entry.
Continue entering the remaining journal entries from the previous pages.
Instruction 2: Print the journal report to the screen, once correct print a hard copy.
1.
Select Reports- journal report.
2.
Verify this data in each field:
Report Device:
Screen
Include what entries: All current journal entries
Month:
July 02
Date Range:
1 to 31
Type of Report:
Detail
3.
Click on OK.
6/30/2003
3-21
4.
5.
6.
7.
Review the report.
If OK, Click on printer Icon. Make sure the Printer is the correct one. If not, select setup to
change the printer.
Once it is correct select OK.
Also note that the date and time are printed at the top of each report. This is helpful if you print
more than one copy of the report.
Instruction 3: Correct any incorrect journal entry by changing or deleting.
1.
NOTE: Once a journal entry is entered and posted it cannot be changed. It must be voided or a
correcting entry made. It is important to learn to correct your entries. Now is a good time to
learn as it does not affect your job. Do not be upset if you need to make corrections. Use this
safe environment to find the type of errors you normally make.
2.
If a journal entry is incorrect identify the ref # from the journal report. The best method to
correct an incorrect entry is to void and reenter the entry.
3.
To void select Entries--post to journal then select VOID in the type of entry. Use the entry #
from the journal report. The program will mark this entry as voided and place it next to the
orignial entry.
Instruction 4: Print Summary Trial Balance
1.
Select Reports - Trial Balance. The Type of Report is Summary. Compare to the reports
attached.
Instruction 5: Print Income Statement- Budgeted
1.
Select Reports - Income Statement- Budgeted, Month to date Variance
Instruction 6: Print Balance Sheet
1.
Select Reports - Balance Sheet . Date is for July 2002. If you use As of date make sure the date
is the end of the month not the beginning of the month.
Instruction 7: Print New Chart of Accounts.
1.
Select Accounts - Print Chart of Accounts
Instruction 8: Make Archival Disk
1.
Make sure the figures are correct.
2.
Leave the program when your numbers are correct.
3.
The program will ask you to make a back-up copy. Select yes. Make sure your company name
is in the middle of the screen. Be sure the copy is made on a blank formatted disk.
4.
Boot up the program again.
Instruction 9: Print General Ledger also called Trial Balance-Detail
1. Select Reports - Trial Balance. The Type of Report is Detail. Compare to the reports attached.
6/30/2003
3-22
Instruction 10: Close the month.
1.
Select Close, then Close the month.
2.
Select OK at the note.
3.
Closing the month, select OK
4.
Type in July and press OK.
Instruction 11: Print August Income Statement.
1.
Select reports-Income Statement-Standard
2.
What totals: Month and Quarter to date
3.
Period Ending: August 1, 2002
4.
The month should be $0 and the Quarter to date should be the amount of July.
6/30/2003
3-23
SUMMARY
In this chapter the two types of General Ledger program were discussed:
stand-alone and integrated. The main parts of a general Ledger module
were also discussed: the Main file (Chart of Accounts), entering transactions,
and the reports that could be printed from the General Ledger module. The
chapter covered posting the entered transactions at the end of month and
end of the year. The need for an audit trail or a list of the activity that
occurred in the batches during the lab session was stressed. A "User's
guide to the General Ledger" was included.
Key Terms --------------------------------------------------------------------------------------------------------------------Account Activity Report
Account Number
Account Name
Account Type
Archival Copy
Audit Trail
Automatic Journal Entries
Chart of Account
Controlling Account
Current Ratio
Debt to Total Assets
General Ledger
General Journal
Historical Balances
Integrated Programs
Journal entries
Journal Entry Number
Main file
Month End
On-the-Fly Entry
Opening Balances
Posting
Quick Ratio
Return on Assets
Standard Chart of Account
Stand-Alone General Ledger
Statement of Cash Flow
Subsidiary Account
Trial Balance
Year End
CHAPTER 3
REVIEW
QUESTIONS
1. What is the difference between a stand-alone General Ledger and an integrated
General Ledger?
2. What is the difference between the General ledger and the General Journal?
3. What is the difference between opening balances and historical balance?
4. What does an existing company have that a new company does not have?
5. What are the four activities you can perform on the Chart of Accounts?
6. What activity does year-end perform that month-end does not perform?
7. Why is a printout of the Journal Entries required when you post?
8. List the five steps to correct a transaction.
SELFEXAMINATION
QUESTIONS
1. Determine if the modules are controlling (C) or subsidiary (S).
__________ Accounts receivable
__________ General Ledger
__________ Accounts Payable
2. What is the main file of the General Ledger?
3. Name two transactions that are likely to be automatic journal entries.
TRUE/FALSE
_________ 4. A hierarchy Chart of Accounts is a simple Chart of Account
________ 5. Chart of Account numbers can be four digits.
________ 6. You can delete an account when using the-on-the-fly feature.
________ 7. The journal entry is the main transaction in the General Ledger.
________ 8. Input forms help the user organize the data entry.
6/30/2003
3-24
Match the Financial Statement with its description:
A.
B.
C.
D.
E.
F.
G.
H.
Chart of Accounts
Trial Balance
General Ledger
Account Activity Report
General Journal
Income Statement
Balance Sheet
Statement of Cash Flow
_________
_________
_________
_________
_________
_________
_________
_________
9.
10.
11.
12.
13.
14.
15.
16.
First financial statement to be printed because it updates the Capital account.
Tells the total value of each account and that the debits equal the credits.
Lists the accounts that are available to use.
Shows the transactions for a group of accounts.
Lists the beginning and ending balance for every account.
States the effect of the cash transactions on the cash account
Lists all the Journal Entries for the batch or month
Shows the value of the Assets, Liabilities, and the updated Capital accounts
Identify the result of the error-handling technique:
A. Correction
B. Error checking
C. Void
D. Delete
_________ 17. Checks to make sure the transaction is OK before pressing Enter.
_________ 18. Reverses the incorrect entry.
_________ 19. Erases the transaction as though it was never there.
_________ 20. Asks what field you want to change.
6/30/2003
3-25
Name __________________________
Date __________
DR. DETAIL, PHd
Cover Sheet
Chapter 3
General Ledger
Order of Report to be attached:
Journal Entry Batch Report for all batches
Journal Detail Report
Trial Balance- Summary
General Ledger - Detail
Income Statement 7/31
Balance Sheet
7/31
Income Statement date 8/01
Did you make your archival disk and a backup disk?
6/30/2003
3-26
Chart of Accounts
Dr. Detail, PhD
Assets
Revenue
Current Assets
4010 Detailing Revenue
1101 Operating Cash—Bank of
America
1102 Saving—Well Fargo
1110 accounts Receivable
1201 Cleaning Supplies
Expense
Administrative Expense
6001 Wage Expense
6002 Pager Rent
6003 Office Supplies
Fixed Assets
Selling Expense
1601
1602
1701
1702
7101
7102
7103
9990
Truck
Accum. Depr.--Truck
Vacuum Cleaner
Accum. Depr.—Vac.Clean
Cleaning Supplies Expense
Depreciation Expense
Misc. Expense
Suspense
Liabilities
Current Liabilities
2010
Accounts Payable
Owner’s Equity
3010
3020
3990
Robert Hawk, Capital
Robert Hawk, Drawing
Retained Earnings
6/30/2003
3-27
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
Enter the July daily transactions as Journal Entries.
Print the Journal Entries edit list to the screen to review for accuracy.
Correct any incorrect Journal Entry by changing or deleting.
Post Journal Entries after all journal entries are correct.
Print trial Balance. (This will help with the adjusting entries).
Enter and Post adjusting entries.
Print the Journal Entries Edit list to the screen.
Post Journal Entries.’
Print an Adjusted Trial Balance
Print a General Journal Report.
Print an Income Statement.
Print a Balance Sheet.
Print a new Chart of Accounts.
Make an archival disk.
Close the month and print the General Ledger (Trial Balance Detail).
Print an August Income Statement that shows zeros in the current period column.
Compile all reports and attach them to the cover sheet in the order given on the
cover sheet.
Instruction
Dr. Detail, PhD
GENERAL
LEDGER LAB
WORK
Follow the instructions to enter the following transactions. Print reports and place in
the order listed on the cover sheet.
a. July 1, 2002 Original Investment. Robert Hawk is investing $200
cash, and old ’76 mini truck (Blue Book value $1500),
cleaning supplies (rags, cleaners--$100), and an old
vacuum cleaner ($25) into the business.
DR. DETAIL,
PHD JULY
TRANSACTIONS
b. July 2, 2002 Robert detailed (fine cleaning) 2 cars at $75 each and 2 vans at
$125 each. Received cash. $400.
c. July 2, 2002 Purchased cleaning supplies from Target using a Visa card,
$165.
d. July 3, 2002 Weekly detailing receipts for 4 cars @$75, receiving cash,
$300.
e. July 5, 2002 Rented a pager to make sure he gets all his calls, $100 plus
$25/month starting in July, Ck#1001, $125
f. July10, 2002 Weekly detailing receipts, $2,500 cash.
g. July10, 2002 Bought supplies with cash from Office Products, $400. (Create
the office supplies account 1200) CK #1002.
h. July10, 2002 Signed a contract to detail Pasadena police cars.
i. July10, 2002 Vacuum cleaner died, bought a new one on account at Vacuum
and Sewing Shop, $700 net 30.
Note: Write off old vacuum cleaner to Misc. Expense, $25
j. July12, 2002 Purchased cleaning supplies with cash, from Hi Line Co, $1000,
CH #1003.
k. July12, 2002 Billed Pasadena police for 12 cars @75, $900.
l. July 17, 2002 Weekly detailing receipts, $2,010 cash.
m. July 20, 2002 Paid for supplies purchased on July 2, $165,CK#1004.
n. July 22, 2002 Received $900 from Pasadena police for July 12 bill, CK #
13459.
o. July23, 2002 Paid $350 on account for the vacuum cleaner purchased on the
10th, CK # 1005.
p. July 26, 2002 Robert Hawk withdrew $2,000, CK #1006.
Adjusting entries
q. July 31, 2002 Cleaning supplies used, $600.
Depreciation on vacuum cleaner, $50.
Depreciation on truck, $50.
6/30/2003
3-28
Name __________________________
Date________
A B C
COMPANY
COVER SHEET
Chapter Three
General Ledger Setup
Order of Reports to be attached:
Journal Entry Batch Report
Journal Detail Report
Trial Balance- Detail
General Ledger - Summary
Profit and Loss Statement 7/31
Statement of Financial Position 7/31
Profit and Loss Statement date 8/01
Did you make an archival disk and a back-up copy?
6/30/2003
3-29
Chart of Accounts
ABC Company
1010
1110
1200
1300
1501
1502
1600
2010
2501
3010
3011
3990
4011
4012
4013
4200
4300
4400
Cash
A/R
Supplies
Prepaid Insurance
Building
Accum Depr – Bldg
Land
A/P
Mortgage Payable
Minor, Capital
Minor, Drawing
Retained Earnings
Korean Sales
Japanese Sales
African Sales
Sales Return & Allowance
Sales Discounts
Freight Out
6/30/2003
5000
5010
5020
5030
6010
6020
6030
6040
6050
6060
6070
8100
9101
9102
9103
9990
Purchases
Purchase Return & allowance
Purchase Discounts
Freight-In
Utilities Expense
Insurance Expense
Printing Expense
Advertising Expense
Postage Expense
Supplies Expense
Depreciation Expense
Rent Income
Interest Expense
Property Taxes
Repair & Maintenance
Suspense
3-30
1. Enter the July daily transactions as Journal Entries.
ABC Accounting Procedures.
When ABC receives an order it deposits the check, records the sales, and
makes a purchase on account. This procedure is called drop ship. An
order is received, then merchandise is purchased on account and it is
delivered directly to the customer. For the sake of simplicity the journal
entry is:
Instructions--ABC
Company
GENERAL LEDGER
LAB WORK
CASH
KOREAN SALES
PURCHASES
A/P
However, note that the standard practice to record a drop ship transaction is:
First – record the cash received as a liability: (CASH-Dr, DEPOSITS
PAYABLE-CR).
Second—When the item is shipped by the company’ vendor to the
customer, the cash sale and the purchase is recorded:
(DEPOSITS PAYABLE-Dr, SALES-Cr ) and (PURCHASESDr, A/P-Cr ).
2. Print Journal Entries Edit list to screen to review for accuracy.
3. Correct any incorrect Journal Entry by changing or deleting.
4. Post Journal Entries after all monthly transactions are correct.
5. Print trial Balance. (This will help with the adjusting entries).
6. Enter adjusting entries.
7. Print the Journal Entries Edit list to the screen.
8. Post Journal Entries
9. Print an Adjusted Trial Balance
10. Print a General Journal Report.
11. Print a Profit/Loss Statement (an Income Statement).
12. Print a Statement of Financial Position (Balance Sheet).
13. Make an archival disk.
14. Close the month and print the General Ledger (Trial Balance Detail).
15. Print an February Income Statement that shows zeros in the current period
column.
16. Compile all reports and attach them to the cover sheet in the order given on
the cover sheet.
6/30/2003
3-31
ABC COMPANY
JULY
TRANSACTIONS
a. July 3, 2002 Received order from Jane Smith for a Korean Flower Pot,
$150, CK #401.
Ordered the flower pot for Smith from Korean Sales Co.,
$75 on account.
____________________________________________
CASH
150
KOREAN SALES
150
PURCHASES
75
A/P
75
___________________________________________
b. July 5, 2002 Paid for 2000 copies of ABC Catalogue from TH Printing
Service $55, CK #5201.
c. July10, 2002 Paid phone bill, $155, CK #5202.
d. July 12, 2002 Purchased supplies with cash, $320, CK #5203.
e. July 15, 2002 Received rent from both tenants, $2,000, CKs #501,7221.
f.
July 17, 2002 Received order from J.H. Persons Co. for 1000 Japanese hats
for his employees, $2,500. CK #178923
Ordered the 1000 hats on account from Mitsui Co. $1,000 N/30
g. July 22, 2002 Make mortgage payment, $2,000. CK #5204;$550
interest,$1,450 principal.
h. July 25, 2002 Received a cash order for a total of 20 African feather dusters.
From Tom Jensen, $200, CK#165.
Ordered 20 dusters on account from Sulu Supplies $100 n30
i.
July 29, 2002 Received a bill from Thomas Ad Agency, $300.
j.
July 30, 2002 Paid post office for bulk mail permit and for mailing the
catalogue, $225, CK#5205.
k. July 31, 2002 Adjusting Entries:
Supplies used
Ppd Insurance Expired
Building Depreciation
6/30/2003
$250
100
555
3-32
A U D I T T E S T - Susy
Chapter 3
Susy
1.
How much cash was received by the company?
________
(How much is on the debit side of the cash account)
2.
How much cash did the company pay out?
________
(How much is on the credit side of the cash account)
3.
What is the balance in A/R?
________
4.
What is the balance in A/P?
________
5.
Balance in Owner's Equity?
________
6.
Total Sales or Service Income?
________
7.
Total Advertising Expense, if any
________
8.
What is the account number for Cash?
________
9.
What is the account number for A/P?
________
10.
What is the Total Expense for the month?
________
11.
What is the total Net Income for the month?
________
12.
How much is the total assets?
________
6/30/2003
3-33
A U D I T T E S T - Detail
Chapter 3
Detail
1. How much cash was received by the company?
________
2. How much cash did the company pay out?
________
3. What is the balance in A/R?
________
4. What is the balance in A/P?
________
5. Balance in Owner's Equity?
________
6. Total Sales or Service Income?
________
7. Total Advertising Expense?
________
8. What is the account number for Cash?
________
9. What is the account number for A/P?
________
10. What is the Total Expense for the month?
________
11. What is the total Net Income for the month?
________
12. How much is the total assets?
________
6/30/2003
3-34
A U D I T T E S T - ABC
Chapter 3
ABC
1. How much cash was received by the company?
________
2. How much cash did the company pay out?
________
3. What is the balance in A/R?
________
4. What is the balance in A/P?
________
5. Balance in Owner's Equity?
________
6. Total Sales or Service Income?
________
7. Total Advertising Expense?
________
8. What is the account number for Cash?
________
9. What is the account number for A/P?
________
10. What is the Total Expense for the month?
________
11. What is the total Net Income for the month?
________
12. How much is the total assets?
________
6/30/2003
3-35