Bookkeeping Lecture 3 Journalizing PDF

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Summary

LECTURE 3Learning Outcome The students will be able to journalize transactions.STEP 2: TRANSACTIONS ARE RECORDED IN THE JOURNALI. ACCOUNTING EVENTS AND TRANSACTIONSAn accounting event is an economic occurrence that causes changes in an enterprise’s assets, liabilities, and/or equity.A transaction is...

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Mrs. G Free Online Bookkeeping Course ____________________________________________________________

LECTURE 3

Learning Outcome The students will be able to journalize transactions.

STEP 2: TRANSACTIONS ARE RECORDED IN THE JOURNAL

I. ACCOUNTING EVENTS AND TRANSACTIONS

An accounting event is an economic occurrence that causes changes in an enterprise’s assets, liabilities, and/or equity.

A transaction is a particular kind of event that involves the transfer of something of value between two entities.

II. DEBITS AND CREDITS- THE DOUBLE-ENTRY SYSTEM

Accounting is based on a double-entry system which means that the dual effects of a business transaction are recorded. A debit side entry must have a corresponding credit side entry. For every transaction, there must be one or more accounts debited and one or more accounts credited. Each transaction affects at least two accounts. The total debits for a transaction must always equal the total credits.

An account is debited when an amount is entered on the left side of the account and credited when an amount is entered on the right side. The abbreviations for debit and credit are Dr. 9from the Latin Debere) and Cr. (from the Latin credere), respectively.

III. TYPICAL ACCOUNT TITLES USED (Your task is to look for the definition of each account.)

ASSETS Current Assets: Cash Cash Equivalents Notes Receivable Reference:

WIN Ballada (2020) Fundamentals of Accountancy: Business and Management 1

Mrs. G Free Online Bookkeeping Course ____________________________________________________________

Accounts Receivable Inventories Prepaid Expenses

Non-Current Assets: Property and Equipment Accumulated Depreciation Intangible Assets

LIABILITIES

Current Liabilities Accounts Payable Notes Payable Accrued Liabilities Unearned Revenues Current Portion of Long-Term Debt

Non-Current Liabilities Mortgage Payable Bonds Payable

OWNER’S EQUITY Capital Withdrawals Income Summary

INCOME Service Income Sales

EXPENSES Cost of Sales Salaries or Wages Expenses Telecommunications, Electricity, Fuel and Water Expenses Supplies Expense Rent Expense Insurance Expense Reference: WIN Ballada (2020) Fundamentals of Accountancy: Business and Management 1

Mrs. G Free Online Bookkeeping Course ____________________________________________________________

Depreciation Expense Uncollectible Accounts Expense Interest Expense

IV. TRANSACTIONS ARE JOUNALIZED

THE JOURNAL The journal is a chronological record of the entity’s transactions. A journal entry shows all the effects of a business transaction in terms of debits and credits. Each transaction is initially recorded in a journal rather than directly in the ledger. A journal is called the book of original entry. The nature and volume of transactions of the business determine the number and type of journals needed. The general journal is the simplest journal.

FORMAT The standard contents of the general journal are as follows: 1. Date 2. Account Titles and Explanation 3. P.R. (posting reference) 4. Debit 5. Credit

Assume that on Nov. 1, 2019, Galicano Del Mundo invests P450,000 to open his business, Del Mundo Landscape Specialist. The journal entry follows:

JOURNAL Date 1

2019

2

Nov. 1

3 4

Account Titles and Explanation

P.R.

Cash

Debit

Credit

450,000

Del Mundo, Capital

450,000

Initial Investment

5

Simple and Compound Entry Ina simple entry, only two accounts are affected- one account is debited and the other account credited. However, some transactions require the use of more than two accounts. When three or more accounts are required in a journal entry, the entry is referred to as a compound entry.

Reference: WIN Ballada (2020) Fundamentals of Accountancy: Business and Management 1

Mrs. G Free Online Bookkeeping Course ____________________________________________________________

Journalizing After the transaction or event has been identified and measured, it is recorded in the journal. The process of recording a transaction is called journalizing.

Illustration: To understand how to record a variety of transactions, we shall analyze the business of Del Mudo Landscape Specialist. _____________________________________________________________________________ Initial Investment Nov. 1

The owner of the Del Mundo Landscape Specialist, Galicano Del Mundo invests P450,000 to open the business.

Analysis Rules

Assets increased. Owner’s equity increased.

Entry

Increase in assets is recorded by a debit to cash. Increase in owner’s equity is recorded by a credit to Del Mundo, Capital.

Date

Account Title and Explanation

Dr.

Nov. 1

Cash

450,000 Del Mundo, Capital

Cr.

450,000

To record initial investment

Rent Paid in Advance Nov. 5

Del Mundo pays P24,000 for a one-year insurance contract that protects his business from Nov. 1 until Oct. 31 of the following year.

Analysis Rules

An asset increased. Another asset decreased. Increases in assets are recorded by debits. Decreases in assets are recorded by credits.

Entry

Increase in assets is recorded by a debit to prepaid insurance. Decrease in assets is recorded by a credit to cash.

Date

Account Title and Explanation

Dr.

Nov. 5

Prepaid Insurance

24,000

Cash

Cr.

24,000

To record insurance premiums paid.

*** Reference: WIN Ballada (2020) Fundamentals of Accountancy: Business and Management 1

Mrs. G Free Online Bookkeeping Course ____________________________________________________________

QUIZ NAME: ______________________________

SCORE: __________

Problem 1: Journalizing Transactions

The chart of accounts for Jerome Gelacio Pest Control is as follows: Assets 110

Cash

120

Accounts Receivable

130

Prepaid Insurance

140

Equipment

150

Service Vehicle Liabilities

210

Accounts Payable Owner’s Equity

310

Gelacio, Capital

320

Gelacio,Withdrawals Income

410

Landscaping Revenues Expenses

510

Salaries Expense

520

Gas and Oil Expense

530

Rent Expense

540

Utilities Expense

550

Supplies Expense

560

Miscellaneous Expense

The entity completed the following transactions in July 2019: July

2

Paid rent for the month, P10,000.

7

Received cash on account from Crown Peak Condos, P21,800.

9

Bought equipment on account from Bay Equipment, P61,000.

12

Received and paid telephone bill, P2,500.

15

Billed City Hall for services performed, P35,000.

20

Paid cash for liability insurance (six months), P16,000.

21

Galacio invested in the business a personal equipment having a fair market value of P49,500.

23

Paid P20,000 on account to Bay Equipment.

Reference: WIN Ballada (2020) Fundamentals of Accountancy: Business and Management 1...