AC 210 Lecture Notes - Lecture 6: General Ledger

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silvercicada472

5 Jun 2018

School

University of Alabama

Department

Accountancy

Course

AC 210

Professor

Lisa Mc Kinney

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Journal Entries

Tracking business activity with T accounts would be cumbersome because most

businesses have a large number of transactions each day. These transactions are

initially recorded on source documents, such as invoices or checks. The first step in

the accounting process is to analyze each transaction and identify what effect it has on

the accounts. After making this determination, an accountant enters the transactions in

chronological order into a journal, a process called journalizing the transactions.

Although many companies use specialized journals for certain transactions, all

businesses use a general journal. In this book, the terms general

journal and journalare used interchangeably.

The journal's page number appears near the upper right corner. In the example below,

GJ1 stands for page 1 of the general journal. Many general journals have five columns:

Date, Account Title and Description, Posting Reference, Debit, and Credit.

To record a journal entry, begin by entering the date of the transaction in the journal's

date column. For convenience, include the year and month only at the top of each page

and next to each month's first entry. In the next column, list each account affected by

the transaction on a separate line, and enter a short description of the transaction

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Document Summary

Tracking business activity with t accounts would be cumbersome because most businesses have a large number of transactions each day. These transactions are initially recorded on source documents, such as invoices or checks. The first step in the accounting process is to analyze each transaction and identify what effect it has on the accounts. After making this determination, an accountant enters the transactions in chronological order into a journal, a process called journalizing the transactions. Although many companies use specialized journals for certain transactions, all businesses use a general journal. In this book, the terms general journal and journalare used interchangeably. The journal"s page number appears near the upper right corner. Gj1 stands for page 1 of the general journal. Date, account title and description, posting reference, debit, and credit. To record a journal entry, begin by entering the date of the transaction in the journal"s date column.

Related Questions

The following tests of controls and substantive tests oftransactions audit procedures for
acquisitions and cash disbursements are to be used in the audit ofWard Publishing Company. You
concluded that internal control appears effective and a reducedassessed control risk is likely to be cost
beneficial. Wardâs active involvement in the business, goodseparation of duties, and competent
controller and other employees are factors affecting youropinion.

PART I:

Tests f Controls and Substantive Tests of Transactions AuditProcedures for Acquisitions and
Cash Disbursements
1. Foot and cross-foot the acquisitions and cash disbursementsjournals for 2 months and trace
totals to postings in the general ledger.
2. Scan the acquisitions and cash disbursements journals for allmonths and investigate any unusual
entries.
3. Reconcile cash disbursements per books to cash disbursements perbank statement for 1 moth.
4. Examine evidence that the bank reconciliation is prepared by thecontroller.
5. Inquire and observe whether the accounts payable master filebalances are periodically
reconciled to vendorâs statements by the controller.
6. Examine the log book s evidence that the numerical sequence ofchecks is accounted for by
someone independent of the preparation function.
7. Inquire and observe that checks are mailed by D. Ward or someoneunder his supervision after
he signs checks.
8. Examine initials indicating that the controller balances theaccounts payable master file to the
general ledger monthly.
9. Select a sample of entries in the cash disbursements journaland
a. Obtain related cancelled checks and compare with entry forpayee, date, and amount and
examine signature endorsement.
b. Obtain vendorsâ invoices, receiving reports, and purchaseorders, and
1. Determine that supporting documents are attached to vendorsâinvoices.
2. Determine that documents agree with the cash disbursementsjournal.
3. Compare vendorsâ names, amounts, and dates with entries.
4. Determine whether a discount was taken when appropriate.
5. Examine vendorsâ invoices for initials indicating an independentreview of chart of
account coding.
6. Examine reasonableness of cash disbursements and accountcodlings.
7. Review invoices for approval of acquisition by Ward.
8. Review purchase orders and /or purchase requisitions for properapproval.
9. Verify prices and recalculate footings and extensions oninvoices.
10. Compare quantities and descriptions on purchase orders,receiving reports, and vendorsâ
invoices to the extent applicable.
11. Examine vendorsâ invoices and receiving reports to determinethat the check numbers
are included and the documents are marked âpaidâ at the time ofcheck signing.
c. Trace posting to the accounts payable master file for name,amount, and date. 10. Select a sample of receiving reports issuedduring the year and trace to vendorsâ invoice and
entries in the acquisitions journal.
a. Compare type of merchandise, name of vendor, date received,quantities, and amounts.
b. If the transaction is indicated in the acquisitions journal aspaid, trace the check number to
the entry in the cash disbursements journal. If unpaid, investigatereasons.
c. Trace transactions to accounts payable master file, comparingname, amount, and date.
Required: Prepare all parts of a sampling datasheet through the planned sample size for the preceding
audit program, assuming that a line item in the cash disbursementjournal is used for the sampling unit.
Use either nonstatistical or attributes sampling. For allprocedures for which the line item in the cash
disbursements journal is not an appropriate sampling unit, assumethat audit procedures were
performed on a nonsampling basis. For all tests of controls, use atolerable exception rate of 5%, and for
all substantive tests of transactions, use a rate of 6%. Use anARACR of 10%, which is considered
medium. Plan for an estimated population exception rate of 1% fortests of controls and 0% for
substantive tests of transactions.
Prepare the data sheet using the computer (also applies to PartII)

	Planned Audit
Description of Attributes	EPER	TER	ARO (10%)	Initial sample size

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AC 210 Lecture Notes - Lecture 6: General Ledger

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