The Combined Journal

1. The Combined Journal Chapter 11

2. Combined Journal Many small businesses use the combined journal. This journal replaces the use of all specialized journals. This journal is efficient since it consolidates record keeping.

3. Defining methods of accounting: accrual basis, cash basis, and modified cash basis. Learning Objective 1

4. Cash Basis Accounting Revenue is recorded when cash is received. Expenses are recorded at date of payment. Cash basis accounting is a simple, convenient accounting system.

5. Accrual Basis Accounting Revenues are recorded when earned. Expenses are recorded when incurred. Accrual accounting is based on the matching principle.

6. Dennis’ Repair Shop Example • Services performed during the month of June: $25,000 • Cash collected from customers: $16,000 • Expenses for the month: $20,000 • Cash paid out: $18,000 What are revenues under the cash basis? • They are the cash collected from customers: $16,000

7. Dennis’ Repair Shop Example • Expenses are the cash paid out during the month: $18,000 Dennis’ Repair Shop lost $2,000 under the cash basis of accounting.

8. Dennis’ Repair Shop Example Dennis’ Repair Shop Cash Basis Income Statement For the Month Ended June 30, 200x Revenues $16,000 Expenses 18,000 Net Loss $ 2,000

9. Dennis’ Repair Shop Example What are revenues under the accrual basis? • Revenues of $25,000 are recognized for the services performed during the month. • Expenses are the $20,000 incurred during the month. • The business made a profit of $5,000.

10. Learning Unit 11-1 A Modified Cash System Revenue is recorded as cash is received. Expenses are recorded when cash is paid.

11. Learning Unit 11-1 A Modified Cash System Supplies and insurance are expensed when consumed. Long-lived assets are depreciated.

12. Recording, journalizing, and posting transactions for a combined journal of a professional service company using a modified cash basis. Learning Objective 2

13. Learning Unit 11-1 • The combined journal is similar to an expanded check register. • It is balanced by proving debits and credit column totals. • It has a debit column for cash received and a credit column for revenue. • Cash payments have a credit column and expenses have debit columns.

14. Learning Unit 11-1 • Sundry columns handle general journal items. • There are no subsidiary ledgers for accounts receivable or accounts payable. • At the end of the month the totals of Cash, Professional Fees, and often-used Expense columns would be posted to the general ledger.

15. Learning Unit 11-1 • During the month, items entered into the Sundry columns are posted individually to the general ledger accounts. • Total the journal and prove the balances.

16. Learning Unit 11-1 • The Sundry debit column is used to record payroll transactions. • Wages expense and payroll expenses are debited when the cash is paid. • The same rules for accrual basis accounting apply to maintaining a payroll register and employee earnings record.

17. Recording, journalizing, and posting transactions for a combined journal of a merchandise company using an accrual basis of accounting. Learning Objective 3

18. Learning Unit 11-2 • Columns are added to the combined journal for sales and purchases related transactions. • The combined journal is used for accrual accounting for this type of company.

19. Learning Unit 11-2 • Post column totals and individual items the same way in which the cash basis combined journal was posted. • The journal must be proven. Debits = Credits

20. End of Chapter 11