Learning Outcomes
• Explain the accounting process
• Describe the double entry system
• Analyse transactions using the double entry system
• Explain the purpose and structure of a general journal and be
able to prepare and enter transactions into a general journal
• Explain the purpose and structure of a general ledger and be
able to prepare one
• Explain the purpose and structure of the analysis journals and
be able to prepare them
• Demonstrate the process of balancing accounts and preparing
a trial balance
THE ACCOUNTING PROCESS
Accounting Equation (week 4)
Week 5
Next week (week 6) Ch 5 and 7
THE DOUBLE ENTRY SYSTEM
• Every event has a debit effect and a credit effect
• Remember the accounting equation – each transaction
affects 2 accounts
• The accounting equation must always stay balanced!!!
Assets
Owner’s
equity
Liabilities
THE DOUBLE ENTRY SYSTEM
DOUBLE ENTRY SYSTEM CONCEPT
DIAGRAM
DOUBLE ENTRY SYSTEM EXAMPLE 1
• Refer to page 120 and 121 of the textbook
• Draw the effects that transactions 1,3,5,7,8,10,16,18
would have on the accounting equation. Make use of a
debit and credit column for each item under the
accounting equation
DOUBLE ENTRY SYSTEM SOLUTION
DOUBLE ENTRY SYSTEM SOLUTION
DOUBLE ENTRY SYSTEM SOLUTION
Learning Outcomes
• Explain the accounting process
• Describe the double entry system
• Analyse transactions using the double entry system
• Explain the purpose and structure of a general journal and be
able to prepare and enter transactions into a general journal
• Explain the purpose and structure of a general ledger and be
able to prepare one
• Explain the purpose and structure of the analysis journals and
be able to prepare them
• Demonstrate the process of balancing accounts and preparing
a trial balance
THE GENERAL JOURNAL
• How do we bring the effects of transactions into the
accounting records?
• We record the transactions in the general journal
• After processing the transactions in the general journal.
This is then transferred to the general ledger
• 1st step in processing information from a transaction after
it has been analysed
• Show the debit and credit effect of a transaction together
• General journal prepared in chronological order
GENERAL JOURNAL
• Shows which accounts are affected by a transaction
• Amounts by which each account is affected
• Journal must always maintain balance in the accounting
equation
• Journal entry is a single line on the accounting equation
Total Dr = Total Cr
GENERAL JOURNAL FORMAT
• The general journal must include
• Date
• Names of the accounts debited and credited
• Reference to the account in the ledger that the transaction is
transferred to
• The amounts
• Explanation of the transaction (Narration)
GENERAL JOURNAL FORMAT
GENERAL JOURNAL EXAMPLE 2
• Draw the general journal entries that would have been
processed for transactions 1,3,5,7,8,10,16,18 on page
120-121 of the textbook
GENERAL JOURNAL SOLUTION
GENERAL JOURNAL SOLUTION
GENERAL JOURNAL SOLUTION
Learning Outcomes
• Explain the accounting process
• Describe the double entry system
• Analyse transactions using the double entry system
• Explain the purpose and structure of a general journal and be
able to prepare and enter transactions into a general journal
• Explain the purpose and structure of a general ledger and be
able to prepare one
• Explain the purpose and structure of the analysis journals and
be able to prepare them
• Demonstrate the process of balancing accounts and preparing
a trial balance
GENERAL LEDGER
• All transactions recorded in the general journal are then
transferred to the general journal
• Posting
• Posting done regularly – can be daily, weekly or monthly –
depends on the accounting system used by the entity
• General ledger – Bring together all the effects of all
transactions on an account (accumulates all journal
entries)
• Like a column of the accounting equation
GENERAL LEDGER FORMAT
• Debit side and a credit side
• Sometimes called a T account
• Includes the following information:
• The date that the transaction took place
• The amount
• The name of the other account affected ( the account that is
debited if we are crediting this account) – contra account
• Reference to the general journal
GENERAL LEDGER FORMAT
Dr
Bank (A) (account name)
Date
Details
Amount
20/01/2021
Sales
20 000
Dr
Date
Cr
Sales (I) (account name)
Details
Cr
Amount
20/01/2021
Bank
20 000
GENERAL LEDGER EXAMPLE 3
• Post transactions 1,3,5,7,8,10,16,18 from the general
journal into the general ledger
GENERAL LEDGER SOLUTION
GENERAL LEDGER SOLUTION
GENERAL LEDGER SOLUTION
OVERALL PROCESS TO FOLLOW
• Analyse the transaction to identify the elements affected
• Asset
• Liability
• Equity
• Income
• Expense
• Identify the effect on the accounting equation
• Think about which account is debited and credited
• Enter the transaction into the general journal
• Post to the general ledger
Learning Outcomes
• Explain the accounting process
• Describe the double entry system
• Analyse transactions using the double entry system
• Explain the purpose and structure of a general journal and be
able to prepare and enter transactions into a general journal
• Explain the purpose and structure of a general ledger and be
able to prepare one
• Explain the purpose and structure of the analysis journals and
be able to prepare them
• Demonstrate the process of balancing accounts and preparing
a trial balance
THE TRIAL BALANCE
THE TRIAL BALANCE
• Why do you think that a pre-adjustment trial balance is
prepared as well as a post adjustment trial balance?
THE TRIAL BALANCE
• After the journal entries have been processed and posted
to the general ledger the next step is to balance the
general ledger account
• Only after the general ledger account has been balanced
can that balance be transferred to the trial balance
BALANCING ACCOUNTS
Step 1
Determine the
normal balance
of the account
(based on the
nature of the
account)
Step 2
Add up all the
amounts on the
normal balance
side and include
a total between
2 lines on both
sides of the
ledger
Step 3
Determine the
amount by
which the other
side is less than
the normal
balance
Step 4
This difference
is the balancing
figure. Write
this as the
Balance c/d on
that side above
the total
Step 5
Write down the
difference on
the opposite
side and label it
balance b/d
BALANCING THE ACCOUNTS
• Example:
Dr
Accounts receivables
Cr
Date
Details
Amount
Date
Details
Amount
20/01/2021
Sales
14 000
28/01/2021
Sales
returns
7 000
24/02/2021
Sales
48 000
27/02/2021
Bank
35 000
28/02/2021
Sales
12 000
Learning Outcomes
• Explain the accounting process
• Describe the double entry system
• Analyse transactions using the double entry system
• Explain the purpose and structure of a general journal and be
able to prepare and enter transactions into a general journal
• Explain the purpose and structure of a general ledger and be
able to prepare one
• Explain the purpose and structure of the analysis journals and
be able to prepare them
• Demonstrate the process of balancing accounts and preparing
a trial balance
PREPARING THE TRIAL BALANCE
• Summarise all of the account balances from the general
ledger
• Trial balance – list of all accounts and their balances at
period end
• Total debits = total credits
• Trial balance is a test to make sure that all of the debits =
credits and the accounting equation has been maintained
TRIAL BALANCE EXAMPLE 4
• Prepare the pre-adjustment trial balance for Smart
Concepts as at 31 March 20x5 using the general ledgers
on pages 143- 145 of the textbook
TRIAL BALANCE SOLUTION
TRIAL BALANCE SOLUTION
TRIAL BALANCE SOLUTION
TRIAL BALANCE SOLUTION
SUMMARY
Analyse the
transaction and
the effect on the
accounting
equation
Enter the
transaction into
the general
journal
Post the
transaction from
the general
journal to the
general ledger
Balance the
general ledger
Prepare the trial
balance
HOMEWORK
• FOR MORE PRACTICE PLEASE DO THE REVISION EXAMPLE
ON PAGE 151 OF THE TEXTBOOK
Learning Outcomes
• Explain the accounting process
• Describe the double entry system
• Analyse transactions using the double entry system
• Explain the purpose and structure of a general journal and be
able to prepare and enter transactions into a general journal
• Explain the purpose and structure of a general ledger and be
able to prepare one
• Explain the purpose and structure of the analysis journals and
be able to prepare them
• Demonstrate the process of balancing accounts and preparing
a trial balance
ANALYSIS JOURNALS
• Previously looked at the general journal
• There were a lot of debits and credits processed in the
general ledger
• In order to make the accounting process more efficient –
use analysis journals
• Using analysis journals decreases the number of posting
to the general ledger
ANALYSIS JOURNALS
Primary analysis journals
Secondary analysis journals
• Sale of goods on credit
(SJ)
• Purchase of goods and
services on credit (PJ)
• The receipt of cash (CRJ)
• Payment of cash (CPJ)
• Return of goods sold (SRJ)
• Return of goods
purchased (PRJ)
• Petty cash funds (PCJ)
ANALYSIS JOURNALS
• WHY HAVE THESE JOURNALS?
• Common transactions
• Common elements debited and credited
• Include them in the same journal – makes it easier to post
journals to the general ledger
SUBSIDIARY LEDGERS
• Want to keep track of amounts owing to / from individual
debtors and creditors
• General ledger – Total amount owing from debtors and
creditors (account receivable/ accounts payable)
• Show amounts owing each debtor separately keep
separate subsidiary ledgers
EXTENDED ACCOUNTING PROCESS
The sales journal
• Used to record sales made to customers on credit
• End of the month. Total in the sale journal is posted to
the general ledger
• Sales journal includes the following:
• Date
• Invoice number
• Name of the debtor (customer)
• Amount of the sale and the reference
• Cost of sales column (perpetual inventory system)
Sales journal example
• Record the following transactions in the sales journal
Sales journal example (page 300)
Sales Journal – January 2006
Date
Invoice
Customer
Sales
Cost of sales
Posting the sales journal to the
general ledger
Dr
Date
Trade receivables (A)
Details
Amount
Dr
Date
Date
Cr
Details
Amount
Sales (I)
Details
Amount
Date
Cr
Details
Amount
Posting the sales journal to the
general ledger
Dr
Date
Inventory (A)
Details
Amount
Dr
Date
Date
Cr
Details
Amount
Cost of sales (E)
Details
Amount
Date
Cr
Details
Amount
The Purchases Journal
• Used to record purchases made on credit
• Not only to record inventory. Used to record all purchases
on credit
• For this reason have columns related to the contra
accounts to the trade payables
Purchases Journal Format
• Date
• Invoice number
• Description
• Column for contra account to trade payables
Purchases Journal Example (Page 304)
• Record the following transactions in the purchases journal
Purchases Journal Example
Purchases Journal – January 2006
Date
Invoice
Details
Accounts
payable
Inventory
Sundry Accounts
Details
Amount
Posting the PJ to the GL
Dr
Date
Trade payables (L)
Details
Amount
Dr
Date
Date
Cr
Details
Amount
Inventory (A)
Details
Amount
Date
Cr
Details
Amount
The Cash Receipts Journal
• Cash Sales
• Cash receipts from customers to settle accounts
• Other receipts
What about purchases bought by
the customer on a credit card?
Cash Receipts Journal Example (Page
308)
Enter the following transactions into the cash receipts
journal:
Cash Receipts Journal Example
Cash Receipts Journal – January 2006
Date
Doc
Acc Name
Sales
Acc
Receivable
Sundries
Cost of
sales
Bank
Posting the CRJ to the GL
Dr
Date
Bank (A)
Details
Amount
Dr
Date
Details
Amount
Date
Details
Amount
Date
Details
Amount
Date
Amount
Cr
Details
Bank (A)
Details
Amount
Cr
Bank (A)
Dr
Date
Details
Bank (A)
Dr
Date
Date
Cr
Amount
Cr
Details
Amount
Posting the CRJ to the GL
Dr
Date
Bank (A)
Details
Amount
Dr
Date
Details
Amount
Trade receivables (A)
Details
Amount
Dr
Date
Date
Cr
Date
Cr
Details
Amount
Sales (I)
Details
Amount
Date
Cr
Details
Amount
Posting CRJ to GL
Dr
Date
Inventory (A)
Details
Amount
Dr
Date
Date
Cr
Details
Amount
Cost of sales (E)
Details
Amount
Date
Cr
Details
Amount
Posting CRJ to the GL
Dr
Date
Capital (OE)
Details
Amount
Dr
Date
Date
Cr
Details
Amount
Interest Income (I)
Details
Amount
Date
Cr
Details
Amount
The Cash Payments Journal
• Payments made out of the bank account
• Purchases
• Settlement of trade payables
• Salaries
• Other - sundries
Cash Payments Journal Example (Pg
312)
• Prepare the cash payments journal for the following
Cash Payments Journal Example
Cash Payments Journal – January 2006
Date
Doc
Details
Inventory
Trade
payables
Salaries
Sundries
Bank
Secondary Journals
Sales Returns Journal
• Goods returned from
customers
• Discounts
• Similar to sales journal
• Post in opposite
direction (DR sales CR
Account rec)
Purchases Returns
Journal
Petty Cash Journal
• Goods returned from
the entity to the
supplier
• Similar format
purchases journal
• Post in opposite
direction (Dr Account
payable Cr Inventory
etc)
• Record payments
made in cash out of
petty cash
• Small Amounts
• Same as cash
payments journal
• Bank column = Petty
Cash