Download Unit 3 – Journals and Ledgers, Keeping track of it all

Accounting 30S
Unit 3: Journals and Ledgers
Unit 3 – Journals and Ledgers, Keeping track of it all
1. The General Journal
- U3 L1 Assignment
2. The Ledger and Posting Procedures
- U3 L2 Assignment
3. Subsidiary Ledgers
- U3 L3 Assignment Part 1
- U3 L3 Assignment Part 2
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Accounting 30S
Unit 3: Journals and Ledgers
1. The General Journal
The Journal
A journal is a book in which all parts of a transaction are recorded in one place.
Transactions are easy to locate since they are recorded in the order in which they
take place (chronological order). Since transactions are entered directly from a
source document, such as an invoice, cheque stub, or sales slip, directly into the
journal, the journal is referred to as a book of original entry.
Advantages of Using a Journal
1. Provides a chronological record of business transactions to present the daily
history of the business.
2. Provides more complete information about the transactions.
3. Provides an effective means of locating errors.
4. Provides a system of evidence of the transactions if source documents are
lost.
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Accounting 30S
Unit 3: Journals and Ledgers
The Journalizing Process
1. Analyze the transaction as you did when making T-account entries. Decide
what account(s) is(are) to be debited and what account(s) is(are) to be
credited.
2. Number the pages consecutively (Page 1, 2, 3, etc.).
3. The year is recorded at the beginning of each journal page under the word
“Date”. This is followed by the month and the day.
4. The name of the account which is to be debited is entered on the same line
as the date, starting at the left margin. The amount of the debit is then
entered in the “Debit” column.
The debit entry is always recorded before the credit entry.
5. The name of the account which is to be credited is entered on the next line,
and is indented. The amount of the credit is then entered in the “Credit”
column.
The debit and credit entries must always be equal.
6. A brief explanation is entered on the third line, starting at the left margin. The
source document number should be included, i.e., cheque, receipt, or
invoice number, or whatever information is available to identify the source
document.
The “Post.Ref.” column is used when transaction data is transferred to the
ledger accounts and will be discussed in a later lesson.
7. A blank line is left between each complete journal entry (i.e., the line
following the explanation is left blank).
8. A journal entry must never be “split” over two pages. The debit, credit, and
explanation must all be on a single page of the journal.
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Accounting 30S
Unit 3: Journals and Ledgers
The Opening Entry
An opening entry is made when a business first begins operation. All of the
assets (debits) and liabilities plus owner’s equity (credits) are entered in one
entry. The opening entry is recorded only once, when the business first opens.
An entry that has more than one debit or more than one credit is referred to as a
compound entry.
Study the sample opening entry for Breadbasket, Inc. in the illustration shown
below.
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Accounting 30S
Unit 3: Journals and Ledgers
U3 Lesson 1 Assignment
Create a folder Unit 3. Create another 2 folders inside Unit 3, one for Fly High
Travel Agency and another for Chiffon Bakery.
1. Copy the Excel file U3 Fly High Ledger from the Unit 3 folder in the Outbox.
Save it in your own FlyHigh folder.
2. Copy the Excel file U3 Chiffon Ledger from the Unit 3 folder in the Outbox
Save it in your own Chiffon folder.
3. Complete the opening entries in the appropriate journal for both companies
Fly High (Jan 1, 2005)
Chiffon Bakery (July 1, 2004)
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Accounting 30S
Unit 3: Journals and Ledgers
4. Enter the transactions below in the appropriate general journal for each of
the companies—Fly High Travel Agency and Chiffon’s Bakery.DO NOT
POST YET.
a. Fly High Travel Agency – January, 2005 transactions
b. Chiffons’ Bakery – July, 2004 transactions
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Accounting 30S
Unit 3: Journals and Ledgers
AN OVERVIEW OF ACCOUNT STRUCTURE IN EXCEL
Create the following SEPARATE files for BOTH companies:
Fly High Travel Agency and Chiffon’s Bakery
1.
Master File containing the following sheets:
a. General Ledger (Gledger)
b. General Journal (Gjournal)
c. Ledger Accounts – one sheet for each account
d. Trial Balance Template (linked to balance of each account)
e. Balance Sheet Template (linked to balance of each Balance Sheet account)
f. Income Statement Template (linked to balance of each Income Statement account)
2.
Subsidiary Accounts Receivable (A/R)
a. Master List – linked to Master File above
b. A sheet for each customer – linked to A/R Master List
3.
Subsidiary Accounts Payable (A/P)
a. Master List – linked to Master File above
b. A sheet for each vendor – linked to A/P Master List
4.
Financials (Jan, Feb, Mar…)
a. Trial Balance*
5.
Financials (Jan, Feb, Mar…)
a. Balance Sheet*
6.
Financials (Jan, Feb, Mar…)
a. Income Statement*
* For each financial file, do Past Special > Values. You want to capture the end of the month situation.
THESE FILES ARE NOT LINKED.
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Accounting 30S
Unit 3: Journals and Ledgers
2. The Ledger and Posting Procedures
The Ledger
The journal is the first place to record transactions. It is important for a business to keep a
record of all the transactions. However, a business also must be aware of the various
account balances at all times and a journal does not provide this type of information. A
business uses a group of accounts called a ledger to provide it with detailed account
information. In this lesson, you will learn how to transfer transaction data from the journal to
the ledger. You will be using Excel to create the ledger.
A ledger is a group of accounts. The ledger shows the current balance of all the accounts
and the separate entries made to the accounts by date. There are several reasons for
using a ledger system of accounts.
Purposes of the Ledger
1. To sort the journal entries into accounts.
2. To summarize the effect of transactions on accounts.
3. To show in one place the total amount of each account.
4. To supply account balances to prepare an up-to-date balance sheet and income
statement.
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Accounting 30S
Unit 3: Journals and Ledgers
Posting
After a transaction has been entered into the journal, the information must be transferred to
the appropriate ledger accounts. This is accomplished by a procedure called posting.
Study the steps of the posting procedure as described and illustrated below.
Steps in Posting 1.
2.
3.
4.
5.
6.
Locate the Account
Record the Date
Enter the Amount
Calculate the New Balance
Complete the Ledger Posting Reference Column
Complete the Journal posting Reference Column
The general ledger in this course will be created in a spreadsheet.
These transactions for Petal Florist, which were journalized previously, must now be
posted.
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Accounting 30S
Unit 3: Journals and Ledgers
Posting References
As the transaction data is transferred from the journal to the ledger, posting references are
entered into the Post. Ref. columns of the ledger and the journal. These numbers provide a
means of cross-referencing transaction data between the journal and the ledger.
The posting procedure is illustrated for the following journal entry:
Posting References are described and illustrated below.
Repeat the posting procedure for each journal entry in the same manner.
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Accounting 30S
Unit 3: Journals and Ledgers
Purposes of Posting References
1. In the Journal – the ledger account number indicates which entries have been posted to
the ledger.
2. In the Ledger – the journal page number indicates where more information about the
transaction can be found.
3. Enables auditors to examine financial records easily.
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Accounting 30S
Unit 3: Journals and Ledgers
Chart of Accounts
Each account in the ledger is assigned
an account number and an account title.
The accounts are given numbers which
place them in the same order as they
appear on the balance sheet and
income statement. These numbers are
usually assigned in the following series
and sequence:
This course will use the number series as illustrated above. However, some systems, such as
Simply Accounting, use the number series in thousands rather than in hundreds. The main rule
to remember is that Assets begin with the number 1, Liabilities begin with 2, Owner’s Equity
begins with 3, Revenues begin with 4 and Expenses begin with 5.
By listing the names and account numbers of all the accounts in the ledger, a business creates
a chart of accounts.
When assigning account numbers, be sure to leave a gap
of approximately ten between accounts to allow for other
accounts to be inserted. This allows for accounts to be
listed in order of liquidity.
Note the chart of accounts for Petal Florist.
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Accounting 30S
Unit 3: Journals and Ledgers
Opening the Ledger Accounts
You learned in a previous lesson how to journalize a business’ beginning assets, liabilities and
owner’s equity in an opening entry. Since this is the beginning of a business, the ledger must
be opened as well. This procedure involves naming and numbering accounts for all of the items
listed in the opening entry. Then the balance for each account must be posted from the journal
opening entry to the ledger accounts and cross-referenced with posting references. This
process is called opening the ledger. New accounts can be added as they are needed.
Study the procedure for opening ledger accounts as illustrated below.
1. Enter the name of the account to the right of the word ACCOUNT.
2. Enter the account number at the far right on the top line.
3. Enter the date in the date column.
4. Enter Opening Entry in the particulars column.
5. Record the amount in the debit or credit column.
6. Enter the balance in the balance column.
7. Enter Dr or Cr in the DR/CR column appropriately.
8. Enter J1 for general journal page 1 in the P.R. column.
9. Enter the ledger account number in the P.R. column of the general journal.
10. Put the account in number order in the ledger.
Open the file: U3 Fly High Ledger that you have already saved. You will need to create a sheet
for each account in the general ledger file. Name the sheet the account name, but keep the
name short and do not use spaces. Enter a similar format as shown below. Enter the formula in
cell G6 as shown below. This formula is for a normal debit balance. If the balance is normally a
credit balance, then reverse the calculation to read =G5-D6+E6. Fill this formula down through
G8. Each time an entry is made to the account, insert a blank row for the entry and fill the
formula down again.
Note that a ledger file for the Cash Account and Bank Loan Payable have already been set up
for you. By right-clicking on one of these tabs you can use the Move/Copy option to copy the
sheet and then change the account name, reference number and opening balance (found on
the General Journal sheet). Be sure to duplicate the Cash sheet for debit accounts and the
Bank Loan Payable for Credit accounts otherwise you will have to change the formula for
calculating the balance.
Take note of the formula used to calculate the ledger balance. Insert a blank row for each new
ledger entry. This will enable you to carry a balance for the account as shown below.
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Accounting 30S
Unit 3: Journals and Ledgers
Forwarding Procedure
Forwarding occurs whenever a ledger account page is full and it is necessary to begin a new
page for the same account. The last balance on the old page is transferred to the top of the new
page. Electronic procedures vary from manual procedures in that automated features are used
for page numbering and headers and footers.
General Journal for Petal Florist after Posting –
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Accounting 30S
Unit 3: Journals and Ledgers
U3 Lesson 2 Assignment
1. Open the files that you created in Lesson 1 of this module—FlyHighTravel and
ChiffonBakery.
2. A Chart of Accounts for each company has been created on a worksheet called
ChartAccounts.
3. You will need to open ledger accounts (as in the Chart of Accounts – note that you
will NOT need one for Accounts Receivable or Accounts Payable, these will be dealt
with in the next lesson) for each company.
Use a new sheet for each account. Name the tab of each sheet the name of the
account—e.g.the accounts Cash and Bank Loan Payable have already been set up in
the tabs named Cash and BankLoanPay.
By right-clicking on one of these tabs you can use the Move/Copy option to copy the
sheet and then change the account name, reference number and opening balance
(found in the opening entries on the General Journal sheet). Be sure to duplicate the
Cash sheet for debit accounts and the Bank Loan Payable for credit accounts
otherwise you will have to change the formula for calculating the balance.
Remember that the opening balances for the accounts come from the opening
entries in the General Journal. The income and expense account balances are
all zero as are the drawing accounts
4. A sheet GLAccountList has been created in each company file for the general ledger
account listing. The accounts have been listed but you need to link the cells to the
balance in each account (e.g., Cash, formula would look like =Cash!G7). Links have
already been set up for Cash and Bank Loan Payable. Note that we will deal with the
accounts Accounts Receivable and Accounts Payable in the next lesson.
5. Save and close each file.
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Accounting 30S
Unit 3: Journals and Ledgers
3. Subsidiary Ledgers
Source Documents
Source documents are business forms that contain evidence of business transactions
on a certain date. These documents begin the accounting process (cycle) by providing
the necessary information for journal entries. Source documents act as a basic proof if
records are questioned and they also provide additional information which may not be
recorded in accounting records.
Types of Source Documents
The main types of source documents are:
1. Purchase Invoice – a source document, received by the buyer, that gives
evidence of a purchase of assets or services on account
2. Sales Invoice – a source document issued by the seller when a sale is made on
account
Example of purchase invoice for the buyer and a sale invoice for the seller
3. Cash Sales Slip – a source document completed by the seller when the sale
was made for cash
4. Cheque Copy – a source document which remains after a cheque is completed.
The payer keeps a copy of the cheque as evidence of the money sent
5. Cash Receipt – generally a list of cash or cheques received. This is usually done
on a daily basis and then used to make journal entries, while the cash and
cheques are deposited in a financial institution
Other source documents might include:
a.
b.
c.
d.
a bank deposit slip
a payroll clock card
a credit note (for goods returned to supplier)
a chequebook stub recording a payment made
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Accounting 30S
Unit 3: Journals and Ledgers
Transactions - Source documents:
Analyze the source documents illustrated below. Then review the entries to record each
transaction in the general journal shown below.
1. Transaction #1
2. Transaction #2
3. Transaction #3
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Accounting 30S
Unit 3: Journals and Ledgers
4. Transaction #4
5. Transaction #5
6. Transaction #6
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Accounting 30S
Unit 3: Journals and Ledgers
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Accounting 30S
Unit 3: Journals and Ledgers
Accounts Receivable Ledger
To improve efficiency and control, and to prevent overcrowding in the general
ledger, the individual customer (receivable) accounts are removed from the general
ledger and grouped together in a book called the Accounts Receivable Subsidiary
Ledger. The Accounts Receivable clerk records sales invoices, payments received
from customers and credit invoices (for customer goods returned). The individual
customer accounts are replaced in the general ledger by a control account called
Accounts Receivable. The Accounts Receivable control account balance must
equal the balance of all the customer accounts added together.
The individual accounts for Petal Florist’s customers are shown below:
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Accounting 30S
Unit 3: Journals and Ledgers
The schedule of accounts receivable for Petal Florist is illustrated below:
The individual customer account balances are not shown on the trial balance. The
total of the accounts receivable balance is the amount shown on the trial balance
for the control account, Accounts Receivable.
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Accounting 30S
Unit 3: Journals and Ledgers
Accounts Payable Ledger
To improve efficiency and control, and to prevent overcrowding in the general
ledger, the individual creditor (payable) accounts are removed from the general
ledger and grouped together in a book called the Accounts Payable Subsidiary
Ledger. The Accounts Payable clerk records purchase invoices, cheque copies
(from payments made to creditors) and credit invoices (for goods to creditors). The
individual creditor accounts are replaced in the general ledger by a control account
called Accounts Payable. The Accounts Payable control account balance must
equal the balance of the total of the creditor accounts.
The individual accounts for Petal Florist’s vendors are shown below:
The schedule of accounts payable for Petal Florist is illustrated below:
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Accounting 30S
Unit 3: Journals and Ledgers
The individual vendor account balances are not shown on the trial balance. The
total of the accounts payable balance is the amount shown on the trial balance for
the control account, Accounts Payable.
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Accounting 30S
Unit 3: Journals and Ledgers
U3 Lesson 3 Assignment Part 1
1. The Excel files U3 Fly High Acc Rec SubLedger, U3 Fly High Acc Pay
SubLedger, U3 Chiffon Acc Rec SubLedger and U3 Chiffon Acc Pay
SubLedger are in the U3 folder in the Outbox. Copy them into the appropriate
folder. You will need to link each subsidiary ledger to the general ledger later.
First you will need to set up a worksheet for each customer/vendor. One of each
has already been done for you to copy. The opening balances for each account
are below.
Fly High Travel Agency - balances as of January 1 -
Chiffon's Bakery - balances as of July 1 –
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Accounting 30S
Unit 3: Journals and Ledgers
Updated Trial Balance
Recording transactions results in changes to the ledger accounts. Once these
changes have been recorded in the appropriate accounts, the previous trial balance
and financial statements (income statement and balance sheet) become outdated.
This provides the need for an updated or current trial balance.
Most businesses prepare a trial balance every month. All debit account balances
and credit account balances are totaled. The totals should equal, indicating the
mathematical accuracy of the ledger.
The trial balance for Petal Florist is shown here. Note that the total on the Schedule
of Accounts Receivable is the same as the amount for the control account,
Accounts Receivable, on the Trial Balance and the total on the Schedule of
Accounts Payable is the same as the amount for the control account, Accounts
Payable, on the Trial Balance.
Study the illustrated trial balance shown below:
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Accounting 30S
Unit 3: Journals and Ledgers
Finding and Correcting Errors
Information on finding and correcting errors can be found on the Internet
The Accounting Cycle
In the previous lessons, you completed the following steps:
1.
2.
3.
4.
Journalizing transactions from source documents;
Posting transactions to appropriate ledger accounts;
Proving the ledger’s accuracy by preparing a trial balance;
Preparing financial statements once the ledger is in balance.
Each of these steps is part of the set of accounting procedures completed in each
accounting period for all accounting systems. This set of procedures is known as
the accounting cycle. These steps must be completed in the proper sequence in
each accounting period.
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Accounting 30S
Unit 3: Journals and Ledgers
U3 Lesson 3 Assignment Part 2
1. Journalize the following transactions in the General Journal Fly High Travel Agency -
Chiffon's Bakery -
2. Post the journal entries from Module 3, Lesson 1, Question 3 and from
question #2 above in the General Ledger or the Subsidiary Ledger as
appropriate.
In the General Journal, record the Account Number (Acct.No.) in the post
referencing (P.R.) column to indicate that posting is complete. Record the
journal page number in each account that you post to indicating also that
posting is complete.
3. A schedule of Accounts Receivable and Accounts Payable for each company
has been included in each subsidiary ledger. You will need to set up links for
each accounts balance – an example has been done for you. The balance from
this schedule should be linked to the list of accounts in the General Ledger.
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Accounting 30S
Unit 3: Journals and Ledgers
4. Prepare an updated trial balance sheet for Fly High Travel and for Chiffon's
Bakery for the end of each month (Fly High = January 31/05; Chiffon = July
31/04)
Use the worksheet for the trial balance in the workbook for the above
companies. Set up the trial balance template using formulas for each account
balance--link to the cell of the balance of each account in the ledger.
5. Prepare an Income Statement for Fly High Travel and for Chiffon's Bakery for
the the month ending (Fly High = January 31/05; Chiffon = July 31/04)
Use the worksheet for the income statement in the workbook for the above
companies. Set up the Income statement template using formulas for each
account balance--link to the cell of the balance of each account in the Trial
Balance.
6. Prepare a Balance Sheet for Fly High Travel and for Chiffon's Bakery for the
the end of each month (Fly High = January 31/05; Chiffon = July 31/04)
Use the worksheet for the balance sheet in the workbook for the above
companies. Set up the balance sheet template using formulas for each account
balance--link to the cell of the balance of each account in the Trial Balance and
Income Statement.
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