lecture 5 _ journal entries.pdf
TRANSCRIPT
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UGBS 205: Fundamentals of
Accounting Methods
RECORDING TRANSACTIONS IN JOURNALS
Chapters 11, 13, 14, 15, 16, 17, 18, and 20 of Wood & Sangster
Sep 2014Prepared by A. Essel-Anderson2
Components
Elements
Users
Financialstatements
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Learning objectives
Distinguish between special journals and general journal
Record transactions in relevant special journalssales
journal, purchases journal, sales returns, purchases returns
journal, cash receipt journal, and cash disbursement
journal.
Use the general journal to pass posting entries.
Sep 2014Prepared by A. Essel-Anderson3
Overview of Journals
General journal
Types of special journals
Sep 2014Prepared by A. Essel-Anderson4
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Overview of
Journals
Importance ofjournals
Classes of journals
Sep 2014Prepared by A. Essel-Anderson5
Journals keep complete chronological recordof transactions processed by the entity
Journals provide means for postingtransactions to ledger accounts
Special journals
Recurring, high-volumetransactions
General journal
Nonrecurring, infrequent,dissimilar transactions
Special Journalsfor purchase of
goods
Purchases journal
Purchases returnsjournal
Sep 2014Prepared by A. Essel-Anderson6
Inventory boughton account
Purchases journal
Inventory boughtfor cash
Cashdisbursementjournal (orcashbook)
Return ofinventory
previously boughton account
Purchases returnsjournal
Refund for returnof inventory
previous boughtfor cash
Cash receiptjournal (orcashbook)
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Special
Journals for
sale of goods
Sales journal
Sales returns journal
Sep 2014Prepared by A. Essel-Anderson7
Inventory sold onaccount
Sales journal
Inventory sold forcash
Cash receiptsjournal (orcashbook)
Return ofinventory
previously sold onaccount
Sales returnsjournal
Refund for returnof inventory
previous sold forcash
Cashdisbursementjournal (orcashbook)
Special Journalsfor cash
transactions
The firm may keep acashbook to recordboth cash receipts andpayments
Or
Keep a separate cashreceipt journal torecord cash receiptsand cashdisbursement journalto record cashpayments
Sep 2014Prepared by A. Essel-Anderson8
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The General Journal
Sep 2014Prepared by A. Essel-Anderson9
Any transaction that cannotbe recorded in any of thespecial journals is recordedin General Journal
Journal for petty cash disbursement
Sep 2014Prepared by A. Essel-Anderson10
Petty cash disbursements
Postage Cleaning agents
Travelling
Food
Souvenirs for guests
Petty cashbook
To keep the main cashbook free from small disbursements, apetty cashbook may be kept to record petty disbursements.
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Illustration 5.1: Kofis Retail
Business
Required: Record transactions for the month ofJanuary 2014 in the relevant journals
Sep 2014Prepared by A. Essel-Anderson11
Illustration 5.1:Kofis Retail
Business
Transactions for thefirst month ofoperations: January2014
Which of thetransactions should be
recorded through aspecial journal?
Which of thetransactions should berecorded through thegeneral journal?
Sep 2014Prepared by A. Essel-Anderson12
Date Description of Transaction
Jan 01 Kofi started business with GH500,000 paid
into business bank account.
Jan 04 Hired a shop from NaaAdjeley for GH400
monthly rent; and paid five years rent in
advance by cheque.
Jan 06 Withdrew GH10,000 cash from bank for
future cash disbursements.
Jan 06 Furnished the shop with shelves, counter,
desk and chairs, and ceiling fun for a total of
GH2,000. Payments were made by cash on
the spot.
Jan 07 GH500 in signage expense incurred and
paid in cash.
Jan 07 Bought motor vehicle for business use,
GH50,000 by cheque.
Jan 07 Kofi withdrew GH2,000 cash from business
bank account for personal use.
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Illustrative Case:
Kofis Trading
Business
Transactions for thefirst month ofoperations: January2014
Which of thetransactions should berecorded through aspecial journal?
Which of thetransactions should berecorded through thegeneral journal?
Sep 2014Prepared by A. Essel-Anderson13
Date Description of Transaction
Jan 08 Bought on account goods worth
GH30,000 less 2% trade discount from
DML Ltd.
Jan 09 Bought on account goods worthGHS28,000 from BenAnsTrading.
Jan 10 Paid vehicle registration and roadworthy
certification fees, GH550, by cash.
Jan 11 Paid cash GH150 to SIC Insurance as
premium for 1-year insurance cover on the
vehicle.
Jan 13 Employed a shop attendant on monthly
gross salary of GH600.
Jan 14 Issued cheque for cash purchases from Jon
Mark, GHS35,000.
Jan 16 Kofi withdrew goods worth GH1,000
personal use.
Jan 17 Returned to DML Ltd one-third of the
goods bought on Jan 08.
Illustrative Case:Kofis Trading
Business
Transactions for thefirst month ofoperations: January2014
Which of thetransactions should be
recorded through aspecial journal?
Which of thetransactions should berecorded through thegeneral journal?
Sep 2014Prepared by A. Essel-Anderson14
Date Description of Transaction
Jan 18 Sold goods worth GH25,000 to ObaaYaa
on account. 3% VAT was charged.
Jan 20 Returned goods worth GHS1,000 to Jon
Mark and cash refund was received.
Jan 21 Cash sales, GH29,000.
Jan 22 Sold goods worth GH17,000 to Nana Addo
on account. 3% VAT was charged.
Jan 25 Obaa Yaa returned goods worth GH2,000.
Jan 27 Issued cheque to DML Ltd in settlement of
amount on account less 2% cash discount.
Jan 28 Paid half of the amount payable to BenAns
Trading by cheque.
Jan 29 Paid the shop attendant net salary for
January by cheque. Employee income tax,
5.5% employee social security fund (SSF),
and 13% employer SSF contribution apply.
Jan 30 Received utility bills totalling GH800.
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Recording Kofis purchase transactions
Sep 2014Prepared by A. Essel-Anderson15
All Credit purchase of
inventory are recorded
in Purchases Journal
All cash purchases of
inventory are recorded
in Cash Disbursement
Journal
Any credit purchase of
property, plant, and
equipment would go to
the General Journal
Any cash purchase of
property, plant and
equipment would go to
the Cash Disbursement
Journal
Kofis Purchases Journal
Sep 2014Prepared by A. Essel-Anderson16
Currency: GH Sheet 1
Date
2014
Supplier Invoice
Number
Terms Debit
Purchases /Inventory
Credit
Trade Payables
8-Jan DML Ltd 29,400 29,400
9-Jan BenAns Trading 28,000 28,000
31-Jan 57,400 57,400
Purchases Journal
Total credit purchases is
posted at the end of the
month to the Purchases A/c in
the General Ledger
Each credit purchase is
posted immediately to
individual Supplier's A/c in
the Purchases Sub-ledger
See Cash Disbursement Journal for the cash inventory purchases
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Recording Kofis inventory returns to
suppliers
Sep 2014Prepared by A. Essel-Anderson17
Inventory bought may be
returned to the supplier forseveral reasons, including:
Inventory not meeting qualityspecifications
Units supplied in excess ofunits ordered
Credit note (credit memo)from the supplier serves assource document
Returns of inventory
previously bought on creditgo to the Purchases Returns(Return Outwards) Journal
Returns of inventoryprevious bought for cash:
Cash Receipt Journal if refundis received immediately
General Journal if refund isnot received immediately
No entry in journals when
returned products areexchanged for same/similarproducts of the same value
Kofis Purchases Returns Journal
Sep 2014Prepared by A. Essel-Anderson18
See Cash Receipt Journal for return of inventory for immediate refund
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Recording Kofis sales transactions
Sep 2014Prepared by A. Essel-Anderson19
All credit sales of
inventory are recorded
in Sales Journal
All cash sales of
inventory are recorded
in Cash Receipt Journal
Any disposal of
property, plant, or
equipment on credit
would go to the General
Journal
Any disposal of
property, plant, or
equipment for
immediate cash
settlement would go theCash Receipt Journal
Kofis Sales Journal
Sep 2014Prepared by A. Essel-Anderson20
Currency: GH Sheet 1
Date
2014
Customer Invoice
Number
Terms Debit
Trade Receivable
Credit
Sales
Credit
VAT Payable
18-Jan Obaa Yaa 25,750 25,000 750
22-Jan Nana Addo 17,510 17,000 510
31-Jan 43,260 42,000 1,260
Sales Journal
Each credit sale is posted
immidiately to the
indivual customer's a/c in
the Sales Subledger
Total credit sales is posted
at the end of the month to
the Sales a/c in the
General Ledger
Total VAT charged is posted
at the end of the month to
the VAT Payable a/c in the
General Ledger
See Cash Receipt Journal for the cash inventory sales
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Recording customers inventory returns to
Kofi
Sep 2014Prepared by A. Essel-Anderson21
Customers may return
inventory to the entity forsome reasons:
Inventory not meeting qualityspecifications
Units supplied in excess ofunits ordered
Credit note (credit memo)sent to the customer servesas source document
Returns of inventory
previously sold on credit goto the Sales Returns (ReturnInwards) Journal
Returns of inventoryprevious sold for cash:
Cash Disbursement Journal ifrefund is paid immediately
General Journal if refund isnot paid immediately
No entry in journals when
returned products areexchanged for same/similarproducts of the same value
Kofis Sales Returns Journal
Sep 2014Prepared by A. Essel-Anderson22
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Recording payroll related transactions
Sep 2014Prepared by A. Essel-Anderson23
A large firm wouldtypically have a largevolume of payroll relatedtransactions, which mayclog the General Journal.
Therefore, large firmsusually maintain a PayrollJournal to recordpayroll transactions.
For a smaller firm,payroll journal entriesmay be made in theGeneral Journal asvolume of payrolltransactions is not toolarge to clog the GeneralJournal.
Judging that Kofis RetailBusiness is a small entity,
lets use the GeneralJournal to pass the payrolljournal entries.
Computations relating to shop attendants
salary
Sep 2014Prepared by A. Essel-Anderson24
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Entries for shop attendants salary in the
General Journal
Entries for Employers
Basic Salary
Entries for Employers
contribution to SSF
Sep 2014Prepared by A. Essel-Anderson25
Debit Salaries Expense a/cand Credit SSF Payable a/cwith employees mandatory5.5% contribution to SSF
Debit Salaries Expense a/cand Credit PAYE Payablea/c with employees incometax withheld
Debit Salaries Expense a/c
and Credit Salaries Payablea/c with net salary
Debit Employer SSF
Expense and Credit SSF
Payable a/c with
employers mandatory
13% contribution to SSF
Entries for shop attendants salary in theGeneral Journal cont.
Sep 2014Prepared by A. Essel-Anderson26
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Recording Kofis cash transactions
Sep 2014Prepared by A. Essel-Anderson27
All transactions involving
receipt of cash go to the
Cash Receipt Journal
All transactions involving
payment of cash go the
cash Disbursement
(Payment) Journal
Kofis Cash Receipt Journal
Sep 2014Prepared by A. Essel-Anderson28
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Kofis Cash Disbursement Journal
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When a cashbook is kept
Sep 2014Prepared by A. Essel-Anderson30
Kofi could have kept a Cashbook in place of the separate
Cash Receipt and Cash Disbursement Journals.
The cashbook keeps record of both transactions that
resulted in cash receipts and those that resulted in cash
payments.
If Kofi kept a cashbook, his cashbook would be as
presented on the next slide.
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Sep 2014Prepared by A. Essel-Anderson31
Kofis GeneralJournal
Kofis General Journalcould be used for thenonrecurring ordissimilar transactionsthat are notindividually too largein volume:
Drawings of goods
Payroll for shopattendant
Accrued expenses
Sep 2014Prepared by A. Essel-Anderson32
Think aboutothers
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Using the General Journal for
Posting Entries
Posting from the purchases journal
Posting from the sales journal
Posting from the purchases returns journal
Posting from sales returns journal
Posting from the cash receipt and disbursement journals
Sep 2014Prepared by A. Essel-Anderson33
Sep 2014Prepared by A. Essel-Anderson34
Creditpurchases
Purchasesreturns
Payments
Discountreceived
Cash refunds
ImmediatePostings
relating toPurchase of
Inventory
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Posting from Purchases Journal to
Purchases Sub-ledger during the month
Sep 2014Prepared by A. Essel-Anderson35
During themonth,purchases areposted to therespectivesuppliers a/cin thePurchasessub-ledger
The checkmarkindicates thatthe purchasetransactions
have beenposted to thesuppliersaccount
Purchases Sub-ledger
Suppliersaccounts withpurchases posted
Supplies accountwith purchases andpurchases returnsposted
Completed suppliersaccount, includingpayments postedfrom CashDisbursementJournal
Sep 2014Prepared by A. Essel-Anderson36
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Posting from Purchases Returns Journal to
Purchases Sub-ledger during the month
Sep 2014Prepared by A. Essel-Anderson37
During themonth,purchasesreturns areposted to therespectivesuppliers a/c inthe Purchasessub-ledger
The checkmark indicatesthat the returnhas beenposted to
DMLs account
Purchases Sub-ledger
Suppliers accountswith purchasesposted
Suppliesaccount, updatedwith purchasesreturns
Completedsuppliers account
Sep 2014Prepared by A. Essel-Anderson38
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Posting from Cash Disbursement Journal to
Purchases Sub-ledger during the month
Sep 2014Prepared by A. Essel-Anderson39
During themonth,payments tosuppliers areposted to thesuppliers a/c inthe Purchasessub-ledger
The checkmark indicatesthat thetransactionshave beenposted to the
suppliers a/c inthe Purchasessub-ledger
Purchases Sub-ledger
Suppliersaccounts withpurchases posted
Suppliesaccount,updated withpurchasesreturns
Completedsuppliersaccount
Sep 2014Prepared by A. Essel-Anderson40
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Sep 2014Prepared by A. Essel-Anderson41
Total credit
purchases Total purchases
returns
Total payments
Total discountreceived
Total cash refunds
End-of-monthPostings
relating toPurchase ofInventory
Preparation of controlling account in the General Ledger
for all suppliers a/c in the Purchases Sub-ledger
Posting of purchases transactions to theGeneral Ledger at the end of the month
Sep 2014Prepared by A. Essel-Anderson42
Post total credit purchases from the Purchases Journal to
the Purchases a/c in the General Ledger
Post total cash purchases from the Cash Disbursement
Journal to the Purchases a/c in the General Ledger
Post total credit purchases returns from the Purchases
Returns Journal to the Purchases Returns (or Return
Outwards) a/c in the General Ledger Post total cash returns from the Cash Receipt Journal to
the Purchases Returns a/c in the General Ledger
Post total payments to suppliers from the Cash
Disbursement Journal to Bank a/c in the General Ledger
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Final Postings
for Purchases
Credit purchases
Purchases returns
Cash payments
Discount received
Sep 2014Prepared by A. Essel-Anderson43
General Ledger(Extract)
Purchases a/c
PurchasesReturns a/c
Sep 2014Prepared by A. Essel-Anderson44
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General
Ledger
(Extract)
DiscountReceived a/c
Sep 2014Prepared by A. Essel-Anderson45
The Trade Payables (or Creditors) Controla/c
Sep 2014Prepared by A. Essel-Anderson46
At the end of the month, a controlling account is opened in
the General Ledger to reconcile entries made in suppliers
accounts in the Purchases Sub-ledger with the journal entries
The following are debited to the Trade Payables Control a/c
(note they are the items usually debited to the individual
suppliers a/c in the Purchases Sub-ledger):
Payments to suppliers
Discount received
Purchases returns
The following are credited to the Trade Payables Control a/c:
Balance brought forward from the end of previous month
Credit purchases
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Kofis Trade Payables (or Creditors) Control
a/c
Sep 2014Prepared by A. Essel-Anderson47
Sep 2014Prepared by A. Essel-Anderson48
Credit sales
Sales returns
Collections
Discount
allowed Cash refunds
ImmediatePostings
relating toSale of
Inventory
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Posting from Sales Journal to the Sales
Subsidiary Ledger during the month
Sep 2014Prepared by A. Essel-Anderson49
Duringthe month,
sales are
posted to
the
respective
customers
a/c in the
Sales sub-
ledger
SalesSub-ledger
Individualcustomersaccount withcredit sales, VAT,and sales returnsposted.
Sep 2014Prepared by A. Essel-Anderson50
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Sep 2014Prepared by A. Essel-Anderson51
Total credit sales
Total salesreturns
Total collections
Total discountallowed
Total cashrefunds
End-of-monthPostings
relating toSale of
Inventory
Preparation of controlling account in the General Ledger
for all customers a/c in the Sales Sub-ledger
Posting of purchases transactions to theGeneral Ledger at the end of the month
Sep 2014Prepared by A. Essel-Anderson52
Post total credit sales from the Sales Journal to the Sales a/c inthe General Ledger
Post total cash sales from the Cash Receipt Journal to theSales a/c in the General Ledger
Post total credit sales returns from the Sales Returns Journalto the Sales Returns (or Return Inwards) a/c in the GeneralLedger
Post total cash refunds (in respect of cash sales returns) from
the Cash Disbursement Journal to the Sales Returns a/c in theGeneral Ledger
Post total collections from customers from the Cash ReceiptJournal to Bank/Cash a/c in the General Ledger
Post total VAT from the journals to the VAT Payable a/c in theGeneral Ledger
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Posting from Sales Journal to General
Ledger at the end of the month
Sep 2014Prepared by A. Essel-Anderson53
Totalcreditsales isposted toSales a/cwhile totalsalesreturns isposted toSales
Returnsa/c inGeneralledger
General Ledger(Extract)
Sales a/c
Sales Returns a/c
Sep 2014Prepared by A. Essel-Anderson54
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General Ledger
(Extract)
VAT Payable a/c
Sep 2014Prepared by A. Essel-Anderson55
The Trade Receivables (or Debtors) Controla/c
Sep 2014Prepared by A. Essel-Anderson56
At the end of the month, a controlling account is opened inthe General Ledger to reconcile all entries made in allcustomers accounts in the Purchases Sub-ledger with the
journal entries
The following are debited to the Trade Receivables Controla/c:
Balance b/f
Credit sales The following are credited to the Trade Receivables Control
a/c:
Sales returns
Collections from customers
Discount allowed
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KofisTrade Receivables (or Debtors) Control
a/c
Sep 2014Prepared by A. Essel-Anderson57