Journalizing Transactions

Journalizing Transactions Accounting 1: Chapter 4

Journals and Journalizing • Recording transactions in a journal creates a more permanent record • Each business uses the kind of journal that best fits the needs of that business • The nature of the business and the number of transactions to be recorded determine the kind of journal to be used

Journals and Journalizing - continued • The word, journal comes from the Latindiurnalis, meaning daily • Most businesses make entries in their accounting journals every day to keep from getting overloaded

Using a Journal • Accuracy • Information recorded in a journal includes the debit and credit parts of each transaction recorded in one place (double-entry accounting) • Information can be verified by comparing the data in the journal with the transaction data

Using a Journal • Chronological record • Transactions are recorded in a journal in order by date • All information about a single transaction is recorded in one place making it the information for a single, specific transaction easy to locate

Using a Journal • Double-entry Accounting • Both the debit and credit parts are recorded, reflecting the dual effect of each transaction on the business’s records • Double-entry accounting assures that debits equals credits

Using a Journal • Source Documents • Each transaction is described by a source document that proves that the transaction did occur • A source document is prepared for each transaction [Accounting Concept: Objective Evidence]

Source Documents • Transactions should be journalized only if it actually occurred and the amounts recorded must be accurate and true • Five major source documents are: checks, sales invoices, receipts, calculator tapes, and memorandums

Checks • The source document for cash payments is a check • Checks are pre-numbered to help account for all checks • A record of the information written on a check is also recorded on a check stub for the business’s records

Sales Invoice • When services are sold on account, the seller prepares a form showing information about the sale (invoice or sales invoice) • A sales invoice may also be referred to as a sales ticket or a sales slip • Sales invoices are pre-numbered and prepared in duplicate; one copy presented to the customer and one copy kept as a source document

Receipts • When cash is received from a source other than sales, a receipt is prepared • Receipts are pre-numbered and serve as the source document for cash received from transactions other than sales

Memorandums • When no other source document is generated for a transaction, or when additional information is needed about a transaction, a memorandum is prepared • A brief note describing the transaction is written/recorded on the memorandum

Calculator Tapes • An electronic calculator (sometimes called an adding machine) is used to total all cash sales in a given business day • By totaling all the individual sales, a single source document is produced saving time and space by recording only one entry for all the day’s sales

Journalizing Entries • An entry consists of four parts: • Date • Debit • Credit • Source document Each part MUST be recorded in an accounting journal for EVERY business transaction

Journalizing Transactions