Lecture 5 _ Journal Entries.pdf

7/26/2019 Lecture 5 _ Journal Entries.pdf

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UGBS 205: Fundamentals of

Accounting Methods

RECORDING TRANSACTIONS IN JOURNALS

Chapters 11, 13, 14, 15, 16, 17, 18, and 20 of Wood & Sangster

Sep 2014Prepared by A. Essel-Anderson2

Components

Elements

Users

Financialstatements


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Learning objectives

Distinguish between special journals and general journal

Record transactions in relevant special journalssales

journal, purchases journal, sales returns, purchases returns

journal, cash receipt journal, and cash disbursement

journal.

Use the general journal to pass posting entries.


Overview of Journals

General journal

Types of special journals



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Overview of

Journals

Importance ofjournals

Classes of journals


Journals keep complete chronological recordof transactions processed by the entity

Journals provide means for postingtransactions to ledger accounts

Special journals

Recurring, high-volumetransactions

General journal

Nonrecurring, infrequent,dissimilar transactions

Special Journalsfor purchase of

goods

Purchases journal

Purchases returnsjournal


Inventory boughton account

Purchases journal

Inventory boughtfor cash

Cashdisbursementjournal (orcashbook)

Return ofinventory

previously boughton account

Purchases returnsjournal

Refund for returnof inventory

previous boughtfor cash

Cash receiptjournal (orcashbook)


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Special

Journals for

sale of goods

Sales journal

Sales returns journal


Inventory sold onaccount

Sales journal

Inventory sold forcash

Cash receiptsjournal (orcashbook)

Return ofinventory

previously sold onaccount

Sales returnsjournal

Refund for returnof inventory

previous sold forcash

Cashdisbursementjournal (orcashbook)

Special Journalsfor cash

transactions

The firm may keep acashbook to recordboth cash receipts andpayments

Or

Keep a separate cashreceipt journal torecord cash receiptsand cashdisbursement journalto record cashpayments



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The General Journal


Any transaction that cannotbe recorded in any of thespecial journals is recordedin General Journal

Journal for petty cash disbursement


Petty cash disbursements

Postage Cleaning agents

Travelling

Food

Souvenirs for guests

Petty cashbook

To keep the main cashbook free from small disbursements, apetty cashbook may be kept to record petty disbursements.


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Illustration 5.1: Kofis Retail

Business

Required: Record transactions for the month ofJanuary 2014 in the relevant journals


Illustration 5.1:Kofis Retail

Business

Transactions for thefirst month ofoperations: January2014

Which of thetransactions should be

recorded through aspecial journal?

Which of thetransactions should berecorded through thegeneral journal?


Date Description of Transaction

Jan 01 Kofi started business with GH500,000 paid

into business bank account.

Jan 04 Hired a shop from NaaAdjeley for GH400

monthly rent; and paid five years rent in

advance by cheque.

Jan 06 Withdrew GH10,000 cash from bank for

future cash disbursements.

Jan 06 Furnished the shop with shelves, counter,

desk and chairs, and ceiling fun for a total of

GH2,000. Payments were made by cash on

the spot.

Jan 07 GH500 in signage expense incurred and

paid in cash.

Jan 07 Bought motor vehicle for business use,

GH50,000 by cheque.

Jan 07 Kofi withdrew GH2,000 cash from business

bank account for personal use.


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Illustrative Case:

Kofis Trading

Business


Which of thetransactions should berecorded through aspecial journal?




Jan 08 Bought on account goods worth

GH30,000 less 2% trade discount from

DML Ltd.

Jan 09 Bought on account goods worthGHS28,000 from BenAnsTrading.

Jan 10 Paid vehicle registration and roadworthy

certification fees, GH550, by cash.

Jan 11 Paid cash GH150 to SIC Insurance as

premium for 1-year insurance cover on the

vehicle.

Jan 13 Employed a shop attendant on monthly

gross salary of GH600.

Jan 14 Issued cheque for cash purchases from Jon

Mark, GHS35,000.

Jan 16 Kofi withdrew goods worth GH1,000

personal use.

Jan 17 Returned to DML Ltd one-third of the

goods bought on Jan 08.

Illustrative Case:Kofis Trading

Business


Which of thetransactions should be

recorded through aspecial journal?




Jan 18 Sold goods worth GH25,000 to ObaaYaa

on account. 3% VAT was charged.

Jan 20 Returned goods worth GHS1,000 to Jon

Mark and cash refund was received.

Jan 21 Cash sales, GH29,000.

Jan 22 Sold goods worth GH17,000 to Nana Addo

on account. 3% VAT was charged.

Jan 25 Obaa Yaa returned goods worth GH2,000.

Jan 27 Issued cheque to DML Ltd in settlement of

amount on account less 2% cash discount.

Jan 28 Paid half of the amount payable to BenAns

Trading by cheque.

Jan 29 Paid the shop attendant net salary for

January by cheque. Employee income tax,

5.5% employee social security fund (SSF),

and 13% employer SSF contribution apply.

Jan 30 Received utility bills totalling GH800.


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Recording Kofis purchase transactions


All Credit purchase of

inventory are recorded

in Purchases Journal

All cash purchases of


in Cash Disbursement

Journal

Any credit purchase of

property, plant, and

equipment would go to

the General Journal

Any cash purchase of

property, plant and

equipment would go to

the Cash Disbursement

Journal

Kofis Purchases Journal


Currency: GH Sheet 1

Date

2014

Supplier Invoice

Number

Terms Debit

Purchases /Inventory

Credit

Trade Payables

8-Jan DML Ltd 29,400 29,400

9-Jan BenAns Trading 28,000 28,000

31-Jan 57,400 57,400

Purchases Journal

Total credit purchases is

posted at the end of the

month to the Purchases A/c in

the General Ledger

Each credit purchase is

posted immediately to

individual Supplier's A/c in

the Purchases Sub-ledger

See Cash Disbursement Journal for the cash inventory purchases


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Recording Kofis inventory returns to

suppliers


Inventory bought may be

returned to the supplier forseveral reasons, including:

Inventory not meeting qualityspecifications

Units supplied in excess ofunits ordered

Credit note (credit memo)from the supplier serves assource document

Returns of inventory

previously bought on creditgo to the Purchases Returns(Return Outwards) Journal

Returns of inventoryprevious bought for cash:

Cash Receipt Journal if refundis received immediately

General Journal if refund isnot received immediately

No entry in journals when

returned products areexchanged for same/similarproducts of the same value

Kofis Purchases Returns Journal


See Cash Receipt Journal for return of inventory for immediate refund


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Recording Kofis sales transactions


All credit sales of


in Sales Journal

All cash sales of


in Cash Receipt Journal

Any disposal of

property, plant, or

equipment on credit

would go to the General

Journal

Any disposal of

property, plant, or

equipment for

immediate cash

settlement would go theCash Receipt Journal

Kofis Sales Journal


Currency: GH Sheet 1

Date

2014

Customer Invoice

Number

Terms Debit

Trade Receivable

Credit

Sales

Credit

VAT Payable

18-Jan Obaa Yaa 25,750 25,000 750

22-Jan Nana Addo 17,510 17,000 510

31-Jan 43,260 42,000 1,260

Sales Journal

Each credit sale is posted

immidiately to the

indivual customer's a/c in

the Sales Subledger

Total credit sales is posted

at the end of the month to

the Sales a/c in the

General Ledger

Total VAT charged is posted

at the end of the month to

the VAT Payable a/c in the

General Ledger

See Cash Receipt Journal for the cash inventory sales


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Recording customers inventory returns to

Kofi


Customers may return

inventory to the entity forsome reasons:

Inventory not meeting qualityspecifications

Units supplied in excess ofunits ordered

Credit note (credit memo)sent to the customer servesas source document

Returns of inventory

previously sold on credit goto the Sales Returns (ReturnInwards) Journal

Returns of inventoryprevious sold for cash:

Cash Disbursement Journal ifrefund is paid immediately

General Journal if refund isnot paid immediately

No entry in journals when

returned products areexchanged for same/similarproducts of the same value

Kofis Sales Returns Journal



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Recording payroll related transactions


A large firm wouldtypically have a largevolume of payroll relatedtransactions, which mayclog the General Journal.

Therefore, large firmsusually maintain a PayrollJournal to recordpayroll transactions.

For a smaller firm,payroll journal entriesmay be made in theGeneral Journal asvolume of payrolltransactions is not toolarge to clog the GeneralJournal.

Judging that Kofis RetailBusiness is a small entity,

lets use the GeneralJournal to pass the payrolljournal entries.

Computations relating to shop attendants

salary



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Entries for shop attendants salary in the

General Journal

Entries for Employers

Basic Salary

Entries for Employers

contribution to SSF


Debit Salaries Expense a/cand Credit SSF Payable a/cwith employees mandatory5.5% contribution to SSF

Debit Salaries Expense a/cand Credit PAYE Payablea/c with employees incometax withheld

Debit Salaries Expense a/c

and Credit Salaries Payablea/c with net salary

Debit Employer SSF

Expense and Credit SSF

Payable a/c with

employers mandatory

13% contribution to SSF

Entries for shop attendants salary in theGeneral Journal cont.



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Recording Kofis cash transactions


All transactions involving

receipt of cash go to the

Cash Receipt Journal

All transactions involving

payment of cash go the

cash Disbursement

(Payment) Journal

Kofis Cash Receipt Journal



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Kofis Cash Disbursement Journal


When a cashbook is kept


Kofi could have kept a Cashbook in place of the separate

Cash Receipt and Cash Disbursement Journals.

The cashbook keeps record of both transactions that

resulted in cash receipts and those that resulted in cash

payments.

If Kofi kept a cashbook, his cashbook would be as

presented on the next slide.


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Kofis GeneralJournal

Kofis General Journalcould be used for thenonrecurring ordissimilar transactionsthat are notindividually too largein volume:

Drawings of goods

Payroll for shopattendant

Accrued expenses


Think aboutothers


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Using the General Journal for

Posting Entries

Posting from the purchases journal

Posting from the sales journal

Posting from the purchases returns journal

Posting from sales returns journal

Posting from the cash receipt and disbursement journals



Creditpurchases

Purchasesreturns

Payments

Discountreceived

Cash refunds

ImmediatePostings

relating toPurchase of

Inventory


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Posting from Purchases Journal to

Purchases Sub-ledger during the month


During themonth,purchases areposted to therespectivesuppliers a/cin thePurchasessub-ledger

The checkmarkindicates thatthe purchasetransactions

have beenposted to thesuppliersaccount

Purchases Sub-ledger

Suppliersaccounts withpurchases posted

Supplies accountwith purchases andpurchases returnsposted

Completed suppliersaccount, includingpayments postedfrom CashDisbursementJournal



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Posting from Purchases Returns Journal to



During themonth,purchasesreturns areposted to therespectivesuppliers a/c inthe Purchasessub-ledger

The checkmark indicatesthat the returnhas beenposted to

DMLs account


Suppliers accountswith purchasesposted

Suppliesaccount, updatedwith purchasesreturns

Completedsuppliers account



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Posting from Cash Disbursement Journal to



During themonth,payments tosuppliers areposted to thesuppliers a/c inthe Purchasessub-ledger

The checkmark indicatesthat thetransactionshave beenposted to the

suppliers a/c inthe Purchasessub-ledger


Suppliersaccounts withpurchases posted

Suppliesaccount,updated withpurchasesreturns

Completedsuppliersaccount



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Total credit

purchases Total purchases

returns

Total payments

Total discountreceived

Total cash refunds

End-of-monthPostings

relating toPurchase ofInventory

Preparation of controlling account in the General Ledger

for all suppliers a/c in the Purchases Sub-ledger

Posting of purchases transactions to theGeneral Ledger at the end of the month


Post total credit purchases from the Purchases Journal to

the Purchases a/c in the General Ledger

Post total cash purchases from the Cash Disbursement

Journal to the Purchases a/c in the General Ledger

Post total credit purchases returns from the Purchases

Returns Journal to the Purchases Returns (or Return

Outwards) a/c in the General Ledger Post total cash returns from the Cash Receipt Journal to

the Purchases Returns a/c in the General Ledger

Post total payments to suppliers from the Cash

Disbursement Journal to Bank a/c in the General Ledger


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Final Postings

for Purchases

Credit purchases

Purchases returns

Cash payments

Discount received


General Ledger(Extract)

Purchases a/c

PurchasesReturns a/c



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General

Ledger

(Extract)

DiscountReceived a/c


The Trade Payables (or Creditors) Controla/c


At the end of the month, a controlling account is opened in

the General Ledger to reconcile entries made in suppliers

accounts in the Purchases Sub-ledger with the journal entries

The following are debited to the Trade Payables Control a/c

(note they are the items usually debited to the individual

suppliers a/c in the Purchases Sub-ledger):

Payments to suppliers

Discount received

Purchases returns

The following are credited to the Trade Payables Control a/c:

Balance brought forward from the end of previous month

Credit purchases


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Kofis Trade Payables (or Creditors) Control

a/c



Credit sales

Sales returns

Collections

Discount

allowed Cash refunds

ImmediatePostings

relating toSale of

Inventory


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Posting from Sales Journal to the Sales

Subsidiary Ledger during the month


Duringthe month,

sales are

posted to

the

respective

customers

a/c in the

Sales sub-

ledger

SalesSub-ledger

Individualcustomersaccount withcredit sales, VAT,and sales returnsposted.



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Total credit sales

Total salesreturns

Total collections

Total discountallowed

Total cashrefunds

End-of-monthPostings

relating toSale of

Inventory

Preparation of controlling account in the General Ledger

for all customers a/c in the Sales Sub-ledger

Posting of purchases transactions to theGeneral Ledger at the end of the month


Post total credit sales from the Sales Journal to the Sales a/c inthe General Ledger

Post total cash sales from the Cash Receipt Journal to theSales a/c in the General Ledger

Post total credit sales returns from the Sales Returns Journalto the Sales Returns (or Return Inwards) a/c in the GeneralLedger

Post total cash refunds (in respect of cash sales returns) from

the Cash Disbursement Journal to the Sales Returns a/c in theGeneral Ledger

Post total collections from customers from the Cash ReceiptJournal to Bank/Cash a/c in the General Ledger

Post total VAT from the journals to the VAT Payable a/c in theGeneral Ledger


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Posting from Sales Journal to General

Ledger at the end of the month


Totalcreditsales isposted toSales a/cwhile totalsalesreturns isposted toSales

Returnsa/c inGeneralledger

General Ledger(Extract)

Sales a/c

Sales Returns a/c



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General Ledger

(Extract)

VAT Payable a/c


The Trade Receivables (or Debtors) Controla/c


At the end of the month, a controlling account is opened inthe General Ledger to reconcile all entries made in allcustomers accounts in the Purchases Sub-ledger with the

journal entries

The following are debited to the Trade Receivables Controla/c:

Balance b/f

Credit sales The following are credited to the Trade Receivables Control

a/c:

Sales returns

Collections from customers

Discount allowed


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KofisTrade Receivables (or Debtors) Control

a/c


Lecture 5 _ Journal Entries.pdf

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Transcript of Lecture 5 _ Journal Entries.pdf