ACCTG300 Chapter Notes - Chapter 3: General Ledger, General Journal, Accounting Equation

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fuchsiapug44

14 Sep 2016

School

University of Alberta

Department

Accounting

Course

ACCTG300

Professor

Trish Stringer

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Document Summary

The system of collection and processing transaction data and communicating. Accounting transactions are economic events that must be recorded in the nancial statements. Not all events are recorded and reported as accounting transactions. Every transaction of a business must be recorded in such a way that the accounting equation for that business remains in balance. Account: what you put your transactions into, place for keeping track of increases, decreases and balances. General journal: the most common of the journals. Cash receipts journal, cash disbursements journal, sales journal, purchases journal. General ledger: entire group of accounts maintained by a company. Trial balance: the list of the accounts in the general ledger at a point in time. Describes where entries are made in the accounts. Debit amount > credit amount = debit balance. Credit amount > debit amount = credit balance. The normal balance is whichever action increases the account. All nancial transactions can be recorded using this method.

Related Questions

Now that you have reviewed information about Hi-Fi Way, you are ready to begin the first step in the accounting cycle, recording transactions. On this page of the practice set, you are asked to record transactions that occurred during the first week of June into the company's journals and post the appropriate entries to the ledger accounts. The following transactions occurred throughout the first week of June:

Week 1
Date	Transaction description
1	Issued Check No. 570 for $8,400 to pay Realty Bites for two month's worth of rent in advance.
1	Obtained a loan of $59,000 from ZNZ Bank at a simple interest rate of 6% per year. The first interest payment is due at the end of August 2017 and the principal of the loan is to be repaid on June 1, 2021.
3	Made payment of $764 to Integer Energy for 3 months of electricity up to and including May 31, Check No. 571.
4	Turbo Tech paid the full amount owing on their account.
4	Paid sales staff wages of $13,224 for the week up to and including yesterday, Check No. 572. Note that $6,637 of this payment relates to the wages expense incurred during the last week of May.
5	Paid the full amount owing to Big Telco, Check No. 573.
7	Issued Check No. 574 to Office Supplies Warehouse for the purchase of $301 worth of office supplies.

After completing this practice set page, you should know how to record basic transactions in the journals provided below and understand the posting process in the manual accounting system. Note that you will record the remaining June transactions in the following sections of this practice set.

Remember, one purpose of using special journals is to make the posting process more efficient by posting the total of most columns in the special journals after all of the transactions for the period have been recorded. However, some parts of a journal entry are still required to be posted on a daily basis. View the company's accounting policies and procedures for details of what is to be posted daily or monthly.

Instructions for week 1

1)Record all week 1 transactions in the relevant journals.

Note that special journals must be used where applicable. Any transaction that cannot be recorded in a special journal should be recorded in the general journal.

2)Post entries recorded in the journals to the appropriate ledger accounts according to the company's accounting policies and procedures.

Note that the relevant totals of the special journals will be posted to the general ledger accounts at the end of the month. You will enter this before you prepare the Bank Reconciliation Statement.

Remember to enter all answers to the nearest whole dollar. When calculating a discount, if a discount is not a whole number, round the discount to the nearest whole dollar. Then, to calculate the cash amount, subtract the discount from the original amount.

Additional instructions

Displaying selected accounting records:

To save space, not all accounting records (e.g. journals and ledgers) will be displayed on every page. However, on each page you can access all accounting records necessary to answer the questions on that page.

There are several tabs representing different views of the accounting records. The active tab by default is Show All, but you may also select to view just one particular accounting record by selecting the appropriate tab.

If you fill in any accounting records and change the view on the page by selecting a different tab, the information that you have entered will remain in that accounting record and be displayed whenever you can see that accounting record.

Before submitting your answers, we recommend that you click the Show All tab and check that all relevant accounting records have been completed. You are required to complete all relevant accounting records before pressing the Submit answers button. Once submitted, you will not be able to return to the page to re-enter or alter your answers.

Journals:

Each transaction recorded in a special journal must be entered in one line. In order to receive full points, you must not split up the relevant transaction into more than one line in the special journal.

For certain transactions in special journals, some accounting textbooks do not always require an account to be chosen under the column labeled Account. In this practice set you arerequired to select an account for each transaction in the special journals. Specifically, in all special journals, under the column labeled Account, you must select the correct account name for each transaction in order to receive full points. Note that for some transactions, this will mean that the account name selected will correspond to the heading of one of the columns in that special journal.

For each journal, in the Post Ref. column you will need to correctly type the account number of the account you are posting to. In particular, in special journals, some accounting textbooks do not always require a reference to be recorded in the Post Ref. column. In this practice set, in order to receive full points, every transaction entered in a special journal requires an entry in the Post Ref. column. Note that in the special journals, if the account name selected for a transaction corresponds to the heading of one of the columns in that special journal, the post ref is to be recorded as an X. This is because these transactions are not posted on a daily basis. In order to receive full points, you must record only the letter Xin the Post Ref. column for these transactions.

Note that in special journals, the Other Accounts column should not be used to record movements of inventory.

There may be entries in the general journal that require posting to both a control account and a subsidiary ledger. In these cases, after you have posted to both ledgers, you should enter the reference for both the general ledger account and the subsidiary ledger account in the Post Ref. column to indicate that you have posted to both accounts. For example, if the reference number for the control account is 110 and the reference number for the subsidiary ledger account is 110-1, you should type '110/110-1' into the Post Ref. column.

General journal entries do NOT require a description of the journal entries.

Ledgers:

When posting a transaction to a ledger account, under the Description column, please type the description of the transaction directly into the field. The exact wording does not matterfor grading purposes. For example, it does not matter in an electricity transaction if you type 'Paid for electricity' or 'Paid electricity bill'.

For each ledger, under the Ref. column, you need to select the correct journal from a list in the drop-down box provided in order to receive full points.

If the balance of a ledger account is zero you do not need to select a debit or credit from the drop-down box.

Each transaction posted to the subsidiary ledgers must be entered in one line. In order to receive full points, you must not split up the relevant transaction into more than one line in the subsidiary ledger.

Both journals and ledgers:

Most journals and ledgers will have blank rows left at the end of the page.

Some journals and ledgers may not require any entries.

When purchases and sales are recorded in special journals, changes in inventory must not be posted to the Merchandise Inventory account in the general ledger on a daily basis.

chocolateporpoise367

This is for AC1420: Week 2 trial balance (ITT Tech) not sureexactly where to start if someone can help

Based on the lesson presentation and readings for this week,prepare a one- to two-page document listing a minimum of fiveadjusting entries to a trial balance, explaining the purpose ofeach of these entries.
Make sure you include both the debit and credit entry for eachadjusting entry. Specify in your response whether these entrieswill increase or decrease the profits in the current period.

Accounting Information Systems
Throughout the chapters of this book, you have been keeping trackof Team Shirtsâ transactions using an accounting equation worksheet. We can do that in a simple world with a small number oftransactions. In the real world, that wouldnât work very well. Acompany in the real world needs a better system to keep track ofthe large number of transactions represented in the four basicfinancial statements. A company may have an accounting system thatgathers only accounting informationâjust recording the informationthat applies to the financial statementsâand other informationsystems gathering information for marketing, production, and otherparts of the company. Alternatively, a company may have a single,integrated information system in which all company information isrecordedâdata about suppliers, employees, operations; and theaccounting information is simply a small part.
The firmâs accounting information is kept in the firmâs generalledger. The general ledger is the collection of a companyâsaccounts where the amounts from the firmâs transactions areorganized and stored. You can think of it as a big book with a pagefor every asset, liability, equity, revenue, and expense account.Later in this appendix, you will learn how transactions getrecorded in a companyâs general ledger. For years, the generalledger system was maintained by the accounting department as aseparate information system; and the other functional areas of thebusinessâmarketing, production, sales, etc.âeach had its own systemfor keeping track of the information it needed. Since thedevelopment of computers and software programs that can managelarge amounts of information, more and more companies are using asingle, integrated information system. Thus, instead of keepingtheir data separately, accountants may get rprise-wide resourceplanning system (ERP).
No matter how it is related to the rest of a firmâs informationsystem, the accounting system is still called the general ledgersystem. The same financial statements are produced with both thegeneral ledger and the integrated types of information systems. Inthis appendix, we will use the general ledger system, which wasdesigned as a manual system, to demonstrate how transactions arerecorded, classified, and summarized for the financialstatements.
The General Ledger Accounting System
Keeping track of financial information with a traditionalrecord-keeping system is often called bookkeeping. As transactionsoccur, they are recorded chronologically by a bookkeeper in a bookcalled a journal. When we prepare an accounting equation work sheetshowing the effect of each transaction on the accounting equation,we are doing something similar to recording a transac- tion in ajournal. The resources exchanged are shown with their dollaramounts. The journal con- tains a record of each transaction as itoccurs. An example is shown in Exhibit B.1. In the next section,youâll learn how the âdebitsâ and âcreditsâ columns are used. Fornow, just notice that all of the accounts affected by thetransaction are used in a journal entry. Most companies use morethan one journal; each department may have its own journal. Commonjournals are the (1) sales journal, (2) cash receipts journal, and(3) cash disbursements journal. For simplicity, weâll use a single,general journal for all our transactions.

ge 4: General Journal
Ref.
J-1
J-2
Date Journal entry Debits Credits
June 1 Cash . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 65,000 Sales . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . 65,000
To record the collection of cash for sales. June 4 Equipment . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . 20,600
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . 20,600 To record the purchase of equipment for cash.
The journal entries are recorded chronologically. Then, theindividual items are âregroupedâ by account as they are posted tothe general ledger. Trace the cash amounts in the journal entriesto the general ledger cash account shown in Exhibit B.2 on page566. The amounts for sales and equipment will be posted to theirown general ledger accounts

Because a company may have hundreds or even thousands oftransactions during an account- ing period, it would be difficult,probably impossible, to try to gather and use the information froma chronological record such as the journal. To be useful, theinformation needs to be reorganized, grouping together transactionsthat involve the same account. For example, when all the transac-tions that involve cash are grouped together, then the companyâscash balance can be easily deter- mined. As you can see from thatexample, it is useful for similar transactions to be groupedtogether. The transactions from the journal or journals aretransferred to another book called the general ledger through aprocess called posting the transactions to the general ledger.Posting is done periodically; it could be daily, weekly, ormonthly, depending on the size of the company.
The general ledger is the primary record of the financialinformation of the business. It is organized by accounts. As youread earlier in this book, an account is the basic classificationunit of accounting information. You can think of each financialstatement item as an account, and each account as a page in thegeneral ledger. On the page for a particular account, we record allthe additions to, and deductions from, that account.
For example, one account in the general ledger is cash. On the cashpage in the general ledger, we find every cash collection and everycash disbursement made by the company. If there are moredisbursements or collections than can fit on one page, they will berecorded on as many following pages as needed, all comprising thecash account. To make it easy to find the amount of cash on hand,the cash account has a running balance. That means a new balance iscalculated after every entry. Think about your own checkbookâthatâsthe record you keep of each check you write (a subtraction); eachdeposit you make (an addition); and the resulting total remainingin your checking account (thatâs your running balance). If you keepa running balance, it is much faster to find out how much cash youhave in your account. (Have you discovered what happens when youfail to keep your checkbook balance current?)
Accounts in the general ledger include cash, accounts receivable,inventory, prepaid insurance, equipment, accumulated depreciation,accounts payable, notes payable, contributed capital, and retainedearnings. (Notice, these are given in the order in which theyappear on the balance sheet.) How many accounts does a companyhave? Every company is different, and the number of accountsdepends on the detail the company wants in its financial records.For example, one company could have an account called utilitiesexpenses in which many different utility-related expenses could beaccumulated. Another company might prefer to have a separateaccount for each type of utility expenseâa separate page in thegeneral ledger for electricity expense, gas expense, water expense,etc. The number of accounts is determined by the amount of detail acompany wants to be able to retrieve from its records. If a companyuses very little gas or water, it would be a waste of time andspace to keep a separate account for those expenses. A company thatuses water in its production process, on the other hand, woulddefinitely want to keep a separate account for waterpurchases.
Companies also have subsidiary ledgers. These are detailed recordsthat support the bal- ances in the general ledger. For example, theaccounts receivable subsidiary ledger will have details about thecredit customersâsales, receipts, and account balances for everycustomer. The total dollar amount of accounts receivable in theaccounts receivable subsidiary ledger will be the total in thegeneral ledger.
Most companies have a large number of accounts, and they combinethe similar ones for the financial statements. When we look at thefinancial statements, we canât really tell how many individualaccounts a company has in its general ledger. Many smaller accountsmay be com- bined for financial statement presentation.
Anyone in the firm with access to the accounting records who wantsto know the balance in any account at any time can find it bylooking in the general ledger. A list of the balances in all theaccounts of a company is called a trial balance.
Before the financial statements can be prepared, adjustments to therecords must be made. We discussed those adjustments and how tomake them in Chapter 3. Adjustments are needed because of thenature of accrual accounting. On the financial statements, we needto include revenues that have been earned and expenses that havebeen incurred, even if we have not yet received the cash earned orpaid the cash for the expenses incurred during the accountingperiod. These adjustments are called accruals. The action has takenplace, but the dollars have not been exchanged.
We also need to be sure to include on the income statement for theperiod any revenue weâve earned or expenses weâve incurred forwhich the dollars were exchanged at a previous time. These arecalled deferrals. The dollars were already exchanged, and werecorded the receipt of the cash when we received the cash.However, we did not recognize any revenue or expense at that time.At the end of the accounting period, we have to recognize anyrevenue we have earned and any expenses that weâve incurred.
No matter what kind of accounting system a company uses, theinformation produced by that system must be adjusted before thefinancial statements can be prepared. After the adjustments aremade, the financial statements are prepared. We have actually doneall thisârecording the transac- tions, making the adjustments, andpreparing the financial statementsâusing the accounting equationwork sheet. The general ledger system is simply a more feasible wayto do it in an actual business.
Debits and Credits
To use the general ledger system and to understand the informationit makes available, we must learn a bit more accounting language.Donât panic over the terms debit and credit. You will find themeasy to understand, but only if first you get rid of any notions ofwhat you already think debit and credit mean. In accounting, eachterm has a very specific meaning that should not be confused withits more general meaning.
In accounting, when we say debit, we mean the left side; when wesay credit, we mean the right side. (This should be easy toremember.) Left is the only thing that the word debit means andright is the only thing that the word credit meansâunless we applythe terms to specific accounts.

A general ledger has been traditionally composed of amulticolumn page, similar to the one shown in Exhibit B.2. TheDebit column on the right shows the running balance in the cashaccount. You would almost never see a credit balance in thisaccount. The general ledger is often computerized in a similarformat.
In the balance columns, the column on the left is called the debit(DR) column, and the column on the right is called the credit (CR)column. As a shortcut to using formal preprinted two-column paper,accountants often draw a T-account to represent a page in thegeneral ledger. T-accounts shown in Exhibit B.3 are ourrepresentation of the general ledger shown in Exhibit B.2. OneT-account such as cash, shown next, represents a single page in thegeneral ledger. The left side of a T-account is the debit side, andthe right side of a T-account is the credit side.
Cash
Debit Credit
Numbers we put on the left side of the account are called debits,and putting a number in the left column is called debiting anaccount. Debit is a wonderful word that can be an adjective, anoun, or a verb. The same goes for the word credit. The right sideof the account is called the credit side, the numbers we put on theright side are called credits, and putting a number in the rightcolumn is called crediting an account.
In the fifteenth century, a monk named Fra Luca Paccioli wroteabout a system that uses debits and credits with the accountingequation. In his system, the accounting equation stays in balancewith each transaction and the monetary amounts of debits andcredits are equal for each transaction. Hereâs how it works:
1. For the accounting equation, the balance in the accounts on theleft side of the equa- tion (assets ) will increase with debits;and the balance in the accounts on the right side of the equation(liabilities and shareholdersâ equity ) will increase with credits.It follows that the balance in an asset account will decrease withcredits. Liability and equity account balances decrease withdebits. Putting that together,
â¢ asset accounts are increased with debits anddecreased with credits. â¢ liability and shareholdersâequity accounts are increased with credits and decreased
with debits.
This means that when we want to add an amount to our cash balance,we put the number of that amount on the left (in the left column ofthe two columns in the general ledger account for cash)âso thatâs adebit. When we disburse cash and want to subtract the amountdisbursed from the cash account, we put the number of that amounton the right sideâso thatâs a credit. The increase side of anaccount is called its ânormalâ balance. Cash has a normal debitbalance. Because we put the cash we receive on the debit side andthe cash we disburse on the credit side, it makes sense that ourcash account will normally have a debit balance. (Itâs not normalto dis- burse more cash than you haveâitâs pretty unusual.)
In accounting, we do not literally add and subtract from an accountbalanceâwe debit and credit an account to accomplish the samething. If we make an error, we do not erase the mistake and replaceit with the correct answer. Instead, we debit or credit the accountto cor- rect the error and make the account balance correct. Whenaccounting records are kept by hand, all entries are made in ink sothat no entries can be erased or changed. This has been traditionalin accounting to keep the records from being altered. Recordingevery increase to, and decrease from, an account balance gives acomplete record of every change made to the account.
2. Because shareholdersâ equity is increased with credits, allaccounts that increase share- holdersâ equity will increase withcredits. Revenue accounts increase with credits and decrease withdebits. When we make a sale, we credit the sales account.
3. Because shareholdersâ equity is decreased with debits, allaccounts that decrease share- holdersâ equity work in the oppositeway as revenue accounts work. For example, expense accountsâwhere alist of our expenses is keptâincrease with debits. As we incurexpenses, we put the amounts on the left side of expenseaccounts.

The Accounting Cycle
The process that starts with recording individual transactions,produces the four basic financial statements, and gets our generalledger ready for the next accounting period is called theaccounting cycle. Some of the steps in the accounting cycle wonâtmake any sense to you yet, but this appendix examines each indetail. By the end of this appendix, you should be able to explainand perform each step. The steps in the accounting cyclefollow:
1. Record transactions in the journal, the chronological record ofall transactions, from source documents such as invoices. These arecalled journal entries.
2. Post the journal entries to the general ledger. 3. At the end ofthe accounting period, prepare an unadjusted trial balance. 4.Prepare adjusting journal entries and post them to the generalledger. 5. Prepare an adjusted trial balance. 6. Prepare thefinancial statements. 7. Close the temporary accounts. 8. Prepare apostclosing trial balance.
Letâs look at each of these steps in detail.
Step 1: Recording Journal Entries
In the normal course of business, many transactions must berecorded in the accounting system. Letâs look at how thetransactions for a companyâs first year of business would berecorded in a jour- nal. The transactions for the first year ofClintâs Consulting Company, Inc., are shown in Exhibit B.4.

Step 1: Recording Journal Entries
In the normal course of business, many transactions must berecorded in the accounting system. Letâs look at how thetransactions for a companyâs first year of business would berecorded in a jour- nal. The transactions for the first year ofClintâs Consulting Company, Inc., are shown in Exhibit B.4.
The first transaction in Clintâs first year of business is his owncontribution of

graymouse341

Solve the following QS and Exercises from your textbook in chapter 8.

QS 8-1

Internal control objectives

An internal control system consists of all policies and procedures used to protect assets, ensure reliable accounting, promote efficient operations, and urge adherence to company policies. Evaluate each of the following statements and indicate which are true and which are false regarding the objectives of an internal control system.

____	1.	Separation of recordkeeping for assets from the custody over assets is intended to reduce theft and fraud.
____	2.	The primary objective of internal control procedures is to safeguard the business against theft from government agencies.
____	3.	The main objective of internal control procedures is best accomplished by designing an operational system with managerial policies that protect the assets from waste, fraud, and theft.
____	4.	Separating the responsibility for a transaction between two or more individuals or departments will not help prevent someone from creating a fictitious invoice and paying the money to herself or himself.

QS 8-2

Cash and equivalents

Choose from the following list of terms/phrases to best complete the following statements.

a.	Cash
b.	Cash equivalents
c.	Outstanding check
d.	Liquidity
e.	Bank reconciliation
f.	Current assets

____	1.	The category includes currency and coins along with amounts on deposit in bank accounts, checking accounts, and savings accounts.
____	2.	The term __________ refers to a companyâs ability to pay for its near-term obligations
____	3.	The __________ category includes short-term highly liquid investment assets that are readily convertible to a known cash amount and sufficiently close to their due dates so that their market value is not sensitive to interest rate changes.

QS 8-3

Internal control for cash

A good system of internal control for cash provides adequate procedures for protecting both cash receipts and cash disbursements. Identify each of the following statements as either true or false regarding this protection.

____	a.	A basic guideline for safeguarding cash is that all cash receipts be deposited weekly or monthly.
____	b.	A voucher system of control is a control system exclusively for cash receipts.
____	c.	A basic guideline for safeguarding cash is to separate the duties of those who have custody of cash from those who keep cash records.
____	d.	A petty cash system is not a control procedure for safeguarding cash.

QS 8-4

Petty cash accounting

The petty cash fund of the Brooks Agency is established at $150. At the end of the current period, the fund contained $28 and had the following receipts: film rentals, $24; refreshments for meetings, $46 (both expenditures to be classified as Entertainment Expense); postage, $30; and printing, $22. Prepare journal entries to record (a) establishment of the fund and (b) reimbursement of the fund at the end of the current period.

Identify the two events from the following that cause a Petty Cash account to be credited in a journal entry.

____	a.	Fund amount is being reduced
____	b.	Fund amount is being increased
____	c.	Fund is being eliminated
____	d.	Fund is being established

Exercise 8-13^A

Documents in a voucher system

Match each document in a voucher system in column one with its description in column two.

Document

1.	Purchase requisition
2.	Purchase order
3.	Invoice
4.	Receiving report
5.	Invoice approval
6.	Voucher

Description

____	A.	An itemized statement of goods prepared by the vendor listing the customerâs name, items sold, sales prices, and terms of sale.
____	B.	An internal file used to store documents and information to control cash disbursements and to ensure that a transaction is properly authorized and recorded.
____	B.	An internal file used to store documents and information to control cash disbursements and to ensure that a transaction is properly authorized and recorded.
____	C.	A document used to place an order with a vendor that authorizes the vendor to ship ordered merchandise at the stated price and terms.
____	D.	A checklist of steps necessary for the approval of an invoice for recording and payment; also known as a check authorization.
____	E.	A document used by department managers to inform the purchasing department to place an order with a vendor.
____	F.	A document used to notify the appropriate persons that ordered goods have arrived, including a description of the quantities and condition of goods.

Exercise 8-14^B

Record invoices at gross or net amounts

Piere Imports uses the perpetual system in accounting for merchandise inventory and had the following transactions during the month of October. Prepare entries to record these transactions assuming that Piere Imports records invoices (a) at gross amounts and (b) at net amounts.

Oct.	2	Purchased merchandise at a $3,000 price, invoice dated October 2, terms 2/10, n/30.
	10	Received a $500 credit memorandum (at full invoice price) for the return of merchandise that it purchased on October 2.
	17	Purchased merchandise at a $5,400 price, invoice dated October 17, terms 2/10, n/30.
	27	Paid for the merchandise purchased on October 17, less the discount.
		31Paid for the merchandise purchased on October 2. Payment was delayed because the invoice was mistakenly filed for payment today. This error caused the discount to be lost. Please provide all the answer thank you

tanmouse0

ACCTG300 Chapter Notes - Chapter 3: General Ledger, General Journal, Accounting Equation

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