Accounting 3

1. Accounting 3 Chapter 18 Section 4

2. General Journal • For corporations, general journals are used to record any information that will not go into any of the special journals. • This usually includes any transactions involving memorandums.

3. General Journal Page ___ Doc. No. Post Ref. Date Account Title Debit Credit Example of General Journal

4. Purchases Returns and Allowances • When customers do not want to keep merchandise that is inferior or damaged, they may be allowed to return it. This credit is called a Purchases Return. • When customers’ merchandise is damaged but still usable, they may be allowed a credit off of what is owed for that merchandise. This credit is called a Purchases Allowance.

5. Debit Memorandums • A Debit Memorandum is a form prepared by the customer showing the price deduction taken by the customer for returns and allowances. • It is called a debit memorandum because the customer records the amount as a debit (deduction) to the vendor account to show the decrease in the amount owed.

6. Example of Debit Memorandum Debit Memorandum 78 Date: _______________ March 8, 2007 To: Second Round, Inc. 162 Webster Road Miami, FL 33127-6214 Winning Edge, Inc. 1420 College Plaza Atlanta, GA 30337-1726 Account Number: 280 Quantity Units Description Price Total 22 Dz. Grade 2 driving range golf balls, your invoice number 16724, are being returned by mail. Our order specified grade 3 golf balls. 6.50 143.00

7. Journalizing Purchases Returns and Allowances • Purchases returns and allowances decrease the amount of purchases. Therefore, Purchases Returns and Allowances is a contra account (an account that reduces a related account on a financial statement) to Purchases. • Purchases Returns and Allowances has a normal credit balance. • Example transaction and visual steps on next slide.

8. General Journal Page ___ Doc. No. Post Ref. Date Account Title Debit Credit Both the Accounts Payable and Second Round, Inc. accounts must be debited for this transaction. Rather than taking up two lines for the accounts debited (and also un-balancing the accounting equation), Accounts Payable and Second Round, Inc. must be written on the same line. The second line of any entry in the general journal needs to be indented. March 8. Returned merchandise to Second Round, Inc., $143.00, covering Purchase Invoice No. 230. Debit Memorandum No. 78. 3 Mar 8 Accounts Pay/ Second Round, Inc. DM78 1 4 3 00 Purchases Ret. and Allowances 1 4 3 00

9. Journalizing Buying Supplies on Account • This is handled just like supplies has always been except that Accounts Payable and the vendor account name must be on the credit line of the entry. • Example Transaction: March 9. Bought supplies on account from Winter Supplies, $316.00. Memorandum No. 26. • Visual steps on next slide.

10. General Journal Page ___ Doc. No. Post Ref. Date Account Title Debit Credit 3 Mar 9 Supplies M26 3 1 6 00 Accounts Pay/ Winter Supplies 3 1 6 00

11. 2115 450 Posting from a General Journal • Posting must be done individually to all accounts involved in each entry. • Most accounts will be in the general ledger. However, vendor accounts are in the Accounts Payable ledger. • The posting reference for the general journal is a G along with the page number. • On the lines which use two accounts, both account numbers must be included in the posting reference column of the general journal. Ex. • Posting will be demonstrated in the Work Together problem.

12. General Journal Page ___ Doc. No. Post Ref. Date Account Title Debit Credit Work Together p. 475 3 Mar 3 Accounts Pay/ Trainor Company DM18 2115 2 3 8 00 450 Purchases Ret. and Allowances 5115 2 3 8 00 5 Supplies M355 1140 1 5 2 00 Accounts Pay/ Hughes Supply 2115 1 5 2 00 420 7 Store Equipment M356 1215 4 2 3 5 00 Accts Pay/ Retail Displays, Inc. 2115 4 2 3 5 00 430 To see the postings, click on the posting reference numbers which are hyperlinked. Assignment

13. General Ledger Account Account Acct No. Acct No. Post Ref Post Ref Date Date Item Item Debit Debit Credit Credit BALANCE BALANCE DEBIT DEBIT CREDIT CREDIT Supplies 1140 Mar 1 Balance 2 7 6 3 00 5 G3 1 5 2 00 2 9 1 5 00 Store Equipment 1215 Mar 1 Balance 12 7 6 1 00 7 G3 4 2 3 5 00 16 9 9 6 00

14. General Ledger Account Account Acct No. Acct No. Post Ref Post Ref Date Date Item Item Debit Debit Credit Credit BALANCE BALANCE DEBIT DEBIT CREDIT CREDIT Accounts Payable 2115 Mar 1 Balance 3 1 3 1 00 3 G3 2 3 8 00 2 8 9 3 00 5 G3 1 5 2 00 3 0 4 5 00 7 G3 4 2 3 5 00 7 2 8 0 00 Purchases Returns and Allowances 5115 Mar 1 Balance 6 9 2 00 3 G3 2 3 8 00 9 3 0 00

15. Accounts Payable Ledger Account Account Acct No. Acct No. Post Ref Post Ref Credit Balance Credit Balance Date Date Item Item Debit Debit Credit Credit Hughes Supply 420 Mar 1 Balance 4 7 2 00 5 G3 6 2 4 00 Retail Displays, Inc. 430 Mar 1 Balance 1 6 8 7 00 7 G3 4 2 3 5 00 5 9 2 2 00

16. Accounts Payable Ledger Account Acct No. Post Ref Credit Balance Date Item Debit Credit 450 Trainor Company Mar 1 Balance 9 7 2 00 3 G3 2 3 8 00 7 3 4 00

17. Assignment • Do Application 18-5 by hand. • Turn it into Mrs. Middleton. • Complete Master 18-7 on the computer. • Follow instructions from Browser window. • Print all journals and ledgers used. • Turn into Mrs. Middleton. • Move on to Chapter 19 Section 1.