Chapter 6
The Journal and Source Documents
The Journal
The Journal is the book where all transactions are first entered
The Journal is arrange in date order and contains the information arranged by transaction compared to the ledger where it is arranged by account
This allows you to find all the details about one transaction easily
Steps for Journalizing1. Record the Date
You only need to record the year or date if it is a new year or date or if it is the start of a new page
2. Enter the names of the accounts to be debited and enter the amounts in the debit column
3. Enter the names of the accounts to be credited (indent these accounts) and enter the amounts in the credit column
4. Write a short explanation of the transaction
Leave a blank line between transactions
Sample
Source Documents
Source documents are the business papers that provide information on the nature of the transaction and other details
These source documents are then filed and retained
Cash Sales Slip
Used when goods or services are sold to a customer for cash
Journal EntryBank $40
Sales $40
Cash Sale
Sales Invoice
Used when goods or services are sold on account
Journal EntryA/R? $500
Sales $500
Sale on account
Point of Sale Summary
Used to record a number of sales at a cash register
Journal EntryBank $350
Sales $350
Point of Sale Summary
Purchase Invoice
Used to record a purchase made on account
Can be used to purchase an expense or an asset
Journal EntryAdvertising Expense $500
A/P? $500Purchased ad in local paper
Cheque Copies
Used to record a cash payment Usually to pay an A/P Must be a copy since the original goes to
the supplier Journal Entry
A/P? $600
Bank $600
Paid A/P
Cash Receipts
Used to record the receipt of cash sometimes from more than one customer
Journal EntryBank $400
A/R? $300
A/R? $100
Received cash on account
Bank Advices or Memos
Used by your bank to inform you of changes to your account
A debit advice means you credit Bank A credit advice means you debit Bank Journal Entry (Debit Advice)
Bank Charges Expense $15
Bank $15
Bank Charges
Federal and Provincial Sales Taxes
Provincial Sales Tax – PST Federal Sales Tax – GST (Goods &
Services Tax) There are some differences when
accounting for these taxes
Provincial and Federal Tax Rates (2006)PST BC – 7% AB – 0% SK – 7% MB – 7% ON – 8% QC – 7.5% PE – 10% YK, NT, NU – 0%
HST (Harmonized Sales Tax)(combined PST and GST)
NB – 14% NS – 14% NL – 14%
GST (Goods & Services Tax) 6% as of July 1 2006
Provincial Sales Tax
A percentage tax on goods sold to a customer
Collected by the retailer Varies from province to province
Accounting by the Purchaser
The purchaser makes no special accounting entry for PST
The PST is included in the cost of the item
Accounting by the Vendor (Seller)
The vender calculates the tax and adds it to the price of the items
Collects the tax from the customer Accumulates the sales tax charged in a
liability called PST Payable Remits the tax to the government
periodically
Journal Entries by the Vendor
Bank $107Sales $100PST Payable $7
Cash sale
A/R? $214Sales $200PST Payable $14
Sale on Account
Remitting the Tax
If the PST Payable is $21 credit Journal Entry
PST Payable $21Bank $21
Remitted Sales Tax Note that sometimes the vendor must pay
the government before they receive the cash from the customer
Goods and Services Tax
The GST is charged on both goods and services unlike the PST which is usually just charged on goods
The GST replaced a manufacturers tax and was recently reduced to 6%
GST is only paid by the end customer
GST Accounting by the Customer
Unlike PST the business customer also accounts for the GST
The GST paid by a business customer is recorded in an account called GST Recoverable and is used to reduce the GST paid by the business
Journal Entry by Customer
Office Supplies $100
GST Recoverable $6
Bank $106
Purchased Office Supplies for Cash
GST Accounting by the Vendor
The Vendor calculates the tax and adds it to the price
Collects the tax from the customer Accumulates the tax in an account called GST
Payable Remits the tax to the Government periodically
(after reducing it by the GST Recoverable)
Journal Entry Vendor
Bank $318
Sales $300
GST Payable $18
Cash sale
Remitting the GST
If the GST Payable is a $18 credit and the GST Recoverable is $6 debit the business only pays the government $12
Journal EntryGST Payable $18
GST Recoverable $6Bank $12
Remitting the GST
GST on the Balance Sheet
If shows up on the Balance Sheet in the Liabilities but note that the GST Recoverable is a debit and reduces the GST Payable
Accounts Payable $400
GST Payable $18
Less GST Recoverable $6 $12
Bank Loan $1000
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