Basic retail accounting - exercise 2 PDF

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BASIC RETAIL ACCOUNTING EXERCISE 2

Name – Sukhpreet Kaur

Student ID – 2505287

Date : 5th February 2021

1. Explain what a journal is. - It is a company’s detailed book that has records of all the financial transactions of a business. Each transaction that is recorded in a journal or the subsidiary books is called a journal. A journal is also known as the book of first entry. The entries are recorded in a chronological order.

2. Name the types of journals. -

The two types of journals are General journal and special journal

3. Give examples of the second type of journal. - The second type of journal is called a special journal and is also called as a subsidiary books - Sales account - Purchase account - Sales return account - Purchase return account - Bills receivable - Bills payable 4. What are subsidiary books and, in your words, what are they used for? - Subsidiary books are the special journals that are used to sub-categorize accounts and transactions. This type of journal is generally used to better organize transactions in appropriate accounts instead of having all transactions in one general journal book.

FUN FACT: A journal entry is a record of the business transactions in the accounting books of the business in chronological order. Since most businesses use

a double-entry accounting system, every financial transaction impact at least two accounts, while one account is debited, another account is credited.

5. Before making the journal entry, what are the three (3) things you need to take in to consideration? -

The capital account - capital account is the initial influx in the form of cash provided by the owner of the company. Drawing account - used when the owner withdraws money or goods from the business for personal use. Goods account - if any transactions related to purchase or sales of goods, instead of making journal entries in one goods account, separate account may be maintained such as purchase, sales, sales return and purchase return account.

6. Should the owner of the company withdraw money from business for personal use, how will you make this entry? (Where should it be debited and credited?) -

Debited to drawing account and credited to cash account

7. Should the owner use withdraw money from the company’s capital, and buy machinery (for the 10th time in a month). How would you create this journal entry? - Debited to the machinery account and credited to the proprietor's account. 8. In your words, when is it advised to open subsidiary books? - When the transactions like sales or purchases are common entries then we create subsidiary books and different books for each sub category. 9. A journal is also known as the book of first entry. 10. A special journal is also known as subsidiary books....