DID YOU EVER KEEP A DIARY?
Did you (or someone you know) ever
keep a diary or journal to record
events in your (their) life?
Why do people keep a diary or
journal?
WHY KEEP A DIARY?
People keep a diary to record events in their
lives. Diaries and journals can remind us of
(1) the date that an event happened (e.g., a
concert, a party, the day you received an
award, a great play in a sporting event), (2)
what happened, (3) who was there to share the
event with us, and (4) any important effects
the experience may have had on us.
WHAT DOES THIS HAVE TO DO WITH
ACCOUNTING?
A Journal is the Accounting
version of a diary
.
Journal
Diary
WHAT IS AN ACCOUNTING JOURNAL?
• A form, or book for recording transactions
in chronological order. In other words, the
transactions are recorded in the order that
they happen – from earliest to most recent
(Just like a diary.) So, the first item
recorded in a journal is the first thing that
happened.
JOURNALS
A journal is the first place a
transaction is recorded–i.e., the
original (first) accounting entry for
a transaction is in a journal.
WHAT IS A JOURNAL (CONTINUED)
• Businesses usually have a
general journal, as well as
special journals for specific
types of transactions (e.g.,
payroll).
JOURNAL ENTRIES
Journal entries are made / analyzed in a
T- account, in terms of debits and
credits. This is called “double-entry”
accounting. Each transaction affects at
least 2 accounts. (Can affect more than
2.)
JOURNAL ENTRIES (CONTINUED)
When making journal entries
for a transaction, debits will
always equal credits.
ALWAYS.
QUIZ:
• If a journal records 4
transactions, which one
happened most recently (last) -#1, #2, #3, or #4?
• Which happened first (earliest)?
ANSWER:
#4 happened most recently (last).
#1 happened earliest (first).
Transactions are recorded in the
order that they happen
(chronologically).
TWO TYPES OF JOURNALS:
There are two types of journals:
(1) Journals without special
columns and
(2) Journals with special
columns
FORM OF A JOURNAL ENTRY – WITHOUT
SPECIAL COLUMNS
• There is a place to enter the date, the
name of the account, and at least one Taccount for debits and credits.
• There is also be a place to enter a
“posting reference” and the “source
document.”
FORMAT OF A GENERAL JOURNAL / ENTRY
EXPLANATION OF FORMAT
• The date is entered on the far
left. The day is entered, but
month and year only when
they change (or on a new
page.)
FORM OF JOURNAL ENTRIES (CONTINUED)
Names of accounts are next. Debits
are listed first, then credits. Credits
are indented. Underneath the
names of the accounts is a short
explanation of the transaction
JOURNAL ENTRIES (CONTINUED)
The dollar amount of the transaction
goes on the far right, on the correct
side of the T-account. (Debits on the
left, credits on the right.) Debits
must equal credits!
JOURNALS WITH SPECIAL COLUMNS
Many businesses use a journal with 5 amount
columns. (See book, pages 73, 84.)
The five columns are:
1.General Debit
2.General Credit
3.Sales Credit
4.Cash Debit
5.Cash Credit
SPECIAL COLUMNS
When you have special columns,
you do not need to write the
account title in the account title
column for transactions where
you can use a special column.
This saves time.
SPECIAL COLUMNS
When you have special columns, you
need to write the account title in the
account title column ONLY if there is
no special column that applies. Then
you use the general debit and credit
columns.
WHEN DO YOU MAKE A JOURNAL ENTRY
O.K., you know what a journal
entry is. How do you know when
you need to make one?
Journal entries are based on
source documents.
WHAT IS A SOURCE DOCUMENT?
• A source document is a business paper or
writing that describes or represents a
transaction.
• A source document is objective evidence of a
transaction; objective means that anyone can
review it and determine what occurred.
• A source document proves that a transaction
occurred (i.e., it provides a paper trail.)
SOURCE DOCUMENTS -- EXAMPLES
Example of source documents
are checks / check stubs,
receipts, cash register tapes,
memoranda, sales invoices,
contracts, and deposit slips
WHAT INFORMATION IS IN A SOURCE DOCUMENT?
A source document should contain
the following information:
1. the dollar amount involved,
2. the date of the transaction, and
3. (possibly) the name of the other
business or person involved
SOURCE DOCUMENTS (CONTINUED)
What type of transactions would a
particular source document describe?
Check (or check stub) – We call it cash, but
businesses rarely use cash. Checks or
electronic fund transfers are usually used
(paper or electronic trail!). Examples: to
describe the purchase of an asset, the
payment of an expense, or a payment on
account.
CHECKS AS SOURCE DOCUMENTS
Checks are prenumbered. In the “Doc.
No.” column of the journal, you would
put “C” for check and the number of
the check. (E.g, if check #4 is your
source document, you would put “C4”
in the “Doc. No.” column.)
SOURCE DOCUMENTS - EXAMPLES
Cash register (or calculator)
tapes can describe the total
day’s sales. Only one entry is
needed for the total sales
that day.
CALCULATOR OR CASH REGISTER TAPES
Tapes are abbreviated “T” plus the
day of the month that the tape
represents. For example, the tape
for December 12 would be
abbreviated “T12” in the “Doc. No.”
column.
SOURCE DOCUMENTS (CONTINUED)
Receipts – a written acknowledgment
for cash / payment received. Example:
they could describe the purchase of an
asset (e.g., supplies). A business may
also give out a receipt when they
receive cash or payment (e.g., sale of
an asset.)
RECEIPTS
Receipts are abbreviated “R” plus the
number of the receipt. (Receipts are
usually pre-printed with a number.)
If your source document is receipt
#6, then you would put “R6” in the
“Doc. No.” column.
SOURCE DOCUMENTS
Memoranda (memorandums) –
when there isn’t any other
source document, or if
additional explanation is
needed.
MEMORANDA
Memoranda are abbreviated with an
“M” and the number of the
memorandum. If your source
document is the 7th memorandum,
then you would enter “M7” in the
“Doc. No.” column.
QUICK QUIZ:
1. What is a source document?
2. Why are they important?
3. Give some examples of types of
source documents.
4.What information is in a source
document?
ANSWERS:
1. A source document is a business paper that
proves a transaction occurred. Journal entries are
based on source documents.
2. It is important because it provides objective
evidence that a transaction occurred; it’s a paper
trail.
3. Examples: checks / check stubs, receipts, cash
register tapes, memoranda; sales invoices, deposit
slips, contracts
ANSWERS (CONTINUED)
4. A
source document should contain
the dollar amount involved, the date
of the transaction, and possibly the
name of the other business or
person involved in the transaction
HOW DOES IT GET FROM THE SOURCE DOCUMENT
TO A JOURNAL ENTRY?
Your co-worker hands you a source
document. You know you have to
enter the information / transaction
in a journal. How do you enter it?
What do you do?
MAKING A JOURNAL ENTRY
1.Read the source document.
2.Determine what kind of transaction it is. Ask
the following:
3.What accounts are affected?
4.Are the accounts being increased or
decreased?
5. Are the accounts being debited or credited?
(DEAD CLOR)
MAKING A JOURNAL ENTRY (CONTINUED)
6.Enter the date the transaction occurred (far
left.) Only enter the month and year if either
changes. Always enter the day of the month.
7.If there are no special columns involved, then
enter the name of the account being debited
first. Then indent, and enter the name of the
account being credited. Enter the debit amount
in the debit column, and the credit amount on
the next line down, in the credit column.
LAST STEP:
Write the source document
number (e.g., R6) in the Doc.
No. column.
ONLY SPECIAL COLUMNS
If the transaction involves only special
columns (i.e.., a sale for cash):
1.Enter the date (only the day unless it is a
new page or a new month);
2.Enter the amount of cash received in the
correct column: cash debit or cash credit
(cash debit – an increase to an asset is a
debit)
ONLY SPECIAL COLUMNS
3.Enter the dollar amount of
sales in the sales credit column,
and
4.Write the source document and
number in the source document
column. (e.g., “T6”).
ONE SPECIAL COLUMN
If the transaction involves only one one
special column (e.g., paid cash for supplies),
then:
1.Enter the date in the left hand column,
2.Write the title of the account being debited
(Supplies) in the Account Title column.
(There is no special amount column for
supplies, so you must write in the account
title.)
ONE SPECIAL COLUMN
4. Enter the dollar amount of the transaction in the
General Debit column.
5. There is a special column for Credits to Cash, so
you do not need to write “cash” in the account title
column. Write the amount of the credit to cash in
the “Cash Credit” column.
6. Write the source document (e.g. “C5”) in the
“Doc. No.” column.
QUIZ
1. What is a journal?
2. True or false: debits usually equal credits.
3. True or false: a transaction may only affect
one account.
4. True or false: a transaction may affect three
accounts.
5. True or false: in a journal, debits are entered
first.
ANSWERS
1. A journal is the business version of a diary. It is a book for
recording transactions. It is the first place where a
transaction is recorded.
2. FALSE. Debits ALWAYS equal credits. ALWAYS ALWAYS
ALWAYS.
3. FALSE. A transaction must always affect at least 2
accounts. ALWAYS ALWAYS ALWAYS.
4. TRUE. A transaction must affect at least 2 accounts, but
may affect more than two.
5. TRUE. Debits are listed first, then credits.
QUIZ, PART 2
1. True or false: Journal entries are listed from the
highest dollar amount to the lowest.
2. True or false: Source documents are created after a
journal entry is made.
3. If a transaction results in an asset (e.g., cash or
supplies) increasing, would you debit or credit the
asset?
4. If a transaction results in revenue decreasing, would
you debit or credit revenue?
ANSWERS
1. FALSE. Journal entries are made in
chronological order, from the earliest to the
most recent.
2. FALSE. Journal entries are based on source
documents. You receive a source document,
and then make an entry.
3. You would DEBIT the asset. DEAD.
4. You would DEBIT revenue. CLOR.
WHAT DO YOU PROVE?
You will prove Journal
pages and Cash.
WHAT IS PROVING?
“PROVING” means showing
that two things are equal.
Proving a Journal page
means showing that total
debits equal total credits.
WHAT IS RULING?
After a Journal page is proved, it
must be ruled. Ruling the page
shows that you have checked the
totals and they are correct.
Double underlining shows that the
totals are correct.
WHEN DO YOU PROVE A JOURNAL PAGE?
• At the end of the page, when there is
only one line left, you prove (and rule)
that page and carry forward totals.
• At the end of the month (even if you are
not at the end of a page) you must
prove (and rule) the last page of the
journal.
PROVING A JOURNAL PAGE
When you have used every line on a page
except the last one, you “prove” the page:
1. Total the amounts in each debit column
(General Debits and Cash Debits).
2. Write in the totals for each debit column on
the last line.
PROVING A JOURNAL PAGE
3. Add the 2 Debit columns together
(this is total debits).
4. Total the amounts in each credit
column (General Credits, Sales
Credits, and Cash Credits). Write
each total on the last line
underneath that column.
PROVING A JOURNAL PAGE (CONTINUED)
5. Add the 3 Credit columns together (this is
total credits).
6. Check that total debits equal total credits.
7. If total debits equal total credits, that page
of the Journal is proved.
8. If total debits do NOT equal total credits,
then you did something wrong. Check your
math.
RULING A JOURNAL PAGE
After a Journal page is proved, you must rule
it.
• Draw a line across all of the amount
columns, below the last entry, to show that
they are being added.
• On the next line, write the day of the
month (and a new month / year if they
have changed) in the Date column.
RULING A JOURNAL PAGE (CONTINUED)
• You prove and rule a Journal page the
same way, whether it is the end of
the month or the end of the page.
• If it is the end of the month, but not
the end of the page, then write
“Totals” in the Account title column.
RULING A JOURNAL PAGE (CONTINUED)
• If it is the end of thepage,write “Carried
Forward” in the column for Account Titles.
Place a check mark in the “Post. Ref.”
column (no posting needed).
• “Rule” -- draw double underlines -- below
the column totals, across all the amount
columns. Double lines mean that the totals
have been verified and are correct.
START A NEW JOURNAL PAGE
1. Write
the page number of the new page at
the top.
2. Write the date in the Date column. Since
it’s the first time you are writing the date
on the page, you must write the year, the
month, and the day.
NEW JOURNAL PAGE (CONTINUED)
3. Write “Brought Forward” in the Account
title column, and place a check in the
Post. Ref. column. (This will tell you that
you don’t need to post it – Chapter 6).
4. Write the column totals from the
previous page.
WHEN DO YOU PROVE AND RULE?
• At the end of the page, when there is
only one line left, you prove and rule
the page and carry forward totals.
• At the end of the month (even if you are
not at the end of a page) you must
prove and rule the last page of the
journal.
PROVING CASH
Proving cash means showing
that the amount of cash you
have agrees with the
accounting records.
WHEN DO YOU PROVE CASH?
• Cash can be proved anytime you
need to verify that the cash records
are correct.
• Most businesses prove cash at the
end of the month; sometimes at the
end of every day.
HOW TO PROVE CASH
Calculate the cash balance:
1.Start with the cash on hand at the
beginning of the period.
2.Add total cash received (the
Journal’s total Cash Debit column).
3. The sum of (1) and (2) is total cash
HOW TO PROVE CASH (CONTINUED)
4.Subtract total cash paid out during the
month (the Journal’s total Cash Credit
column) from Total Cash.
5.The result is the cash balance at the end
of the period.
6.The answer in (5) should be equal to the
checkbook balance on the next unused
check stub (or the actual cash you have.)