MGMT 101 - Chapter 4 Journalizing and Posting Transactions

What should be done before preparing a trial balance?

All transactions should be journalized and posted so that the effect of all transactions will be reflected in the ledger accounts

What are two methods of making a correction once an error has been found?

The ruling method (i.e., a method of correcting an entry in which a line is drawn through the error and the correct information is placed above it) and the correcting entry method (i.e., a method of correcting an entry in which an entry to correct an incorrect entry that has been journalized and posted to the wrong account is utilized)

When should the ruling method be used?

The ruling method should be used when an incorrect journal entry has been made, but not yet posted, and when a proper entry has been made but posted to the wrong account or for the wrong amount [Note: When using the ruling method, draw a single line through the incorrect account title or amount and write the correct information directly above the line with corrections being initialed by someone authorized to make such changes which is done so the source and reason for the correction can be traced]

If a compound entry has two credits how are they listed?

The two credits are listed after the debit, indented and listed one under the other

If a compound entry has two debits how are they listed?

The two debits are aligned with the left margin of the Description column and listed one under another

What do source documents do?

Triggers the analysis of what happened, begins the process of entering transactions in the accounting system, and provide information that is useful in determining the effect of business transactions on specific accounts

T/F No entries are made in the Posting Reference column at the time of journalizing.

True

T/F Source documents serve as historical evidence of business transactions

True

T/F When an incorrect entry has been journalized and posted to the wrong account, a correcting entry should be made.

True

T/F When entering the dredit itemin a general journal, it should be listed after all debits and indented.

True

A day-by-day listing of the transactions of a business is known as _____

journal

Which of the following is not a source document? a) check stub b) cash register tape c) journal entry d) purchase invoice

journal entry

Entering business transactions into the journal is known as _____

journalizing

An account with columns for the debit or credit transaction and columns for the debit or credit running balance is known as _____

ledger account

Copying the debits and credits from the journal to the ledger accounts is known as _____

posting

A method of correcting an entry in which a line is drawn through the error and the correct information is placed above it is known as _____

ruling method

An error that occurs when debit or credit amounts move a digit or two to the left or right is known as _____

slide error

Any document that provides information about a business transaction is known as _____

source document

When the correct numbers are used but are in the wrong order, the error is called a _____

transposition

An error that occurs when two digits are reversed is known as _____

transposition error

What are examples of source documents and what information do they provide?

- paycheck stubs/copies of checks (Cash payments) - Receipt stubs/copies of receipts/cash register tapes/memos of cash register totals (Cash receipts) - Copies of sales tickets/sales invoices issued to customers or clients (Sales of goods or services) - Purchase invoices received from suppliers (Purchase of goods or services)

What percentage of amounts entered in the journal must be posted to the general ledger accounts?

100% of all amounts entered in the journal and posting is done frequently

What is important to ensure when journalizing transactions that require a compound entry?

The debits must equal the credits

A list used to prove that the totals of the debit and credit balances in the ledger accounts are equal is known as _____

trial balance

A journal with only two amount columns, one for debit amounts and one for credit amounts is known as _____

two column journal

To purchase an asset such as office equipment on account, you would credit which account?

Accounts Payable

A revenue account will begin with the number ____ in the chart of accounts.

4

What is the book of original entry?

A Journal or the first formal accounting record of a transaction (Note: The journal is commonly referred to as an original book of entry)

What is the general ledger?

A complete set of all the accounts used by a business which accumulates a complete record of the debits and credits made to each account as a result of entries made in the journal

What is a journal?

A day-by-day listing of the transactions of a business

What is a compound entry?

A general journal entry that affects more than two accounts (i.e., entries that require more than one debit and/or credit)

What is a two-column general journal?

A journal with only two amount columns, one for debit amounts and one for credit amounts, its pages are numbered in the upper right-hand corner (Note: Although many types of journals are used in business, the simplest journal form is a two-column general journal and any kind of business transaction may be entered into a general journal)

What information does the chart of accounts include?

Account titles in numeric order for all assets, liabilities, owner's equity, revenues, and expenses and the numbering of the account titles should follow a consistent pattern (i.e., asset accounts begin with "1", liability accounts begin with "2", owner's equity accounts begin with "3", revenue accounts begin with "4" and expense accounts begin with "5

What does the chart of accounts do?

Allows the individual that is answering the three basic questions that must be answered when analyzing business transactions (i.e., what happened, which accounts are affected, and how is the accounting equation affected) to determine the answer to the second question "which accounts are affected" by listing for the individual all the accounts being used by the business (i.e., the individual picks which accounts are affected from the list of all accounts used by a business instead of making up accounts for every transaction)

If the trial balance indicates the ledger is in balance does this mean that the ledger does not contain errors?

Although a trial balance may indicate that the ledger is in balance, the ledger can still contain errors (i.e., if a journal entry was made debiting or crediting the wrong accounts, or if an item was posted to the wrong account, the ledger will still be in balance, and therefore it is important when preparing the journal entries and in posting them to the ledger accounts)

What are the primary advantages of T accounts and general ledger accounts?

Although similar to a T account, the general ledger account keeps a running balance and this is its primary advantage, however the T account has debit and credit sides of an account that are easier to identify and this is its primary advantage

What is a general ledger account?

An account with columns for the debit or credit transaction and columns for the debit or credit running balance

What does it look like to draw the flow of data graphically?

Analyze transactions using Source Documents and Chart of Accounts Processing Enter business transactions in the General Journal "JOURNALIZING" Processing Post the entries to the General Ledger "POSTING" Processing From the General Ledger prepare a "TRIAL BALANCE"

What is a source document?

Any document that provides information about a business transaction (Note: document can be hard (i.e., paper source document) or soft (i.e., electronic source document)

The journal of the first formal accounting record of a transaction is known as _____

Book of original entry

A list of all accounts used by a business that provides the answer to the second step in analyzing a business transaction is known as _____

Chart of accounts

What are the columns in a two-column general journal?

Column Date Column Description Column Posting Reference Column Debit Amount Column Credit Amount

What is posting?

Copying the debits and credits from the journal to the ledger accounts (i.e., simply the process of copying the exact dates and dollar amounts from the journal to the correct ledger accounts)

Journalize the following transaction below: 1: Stephen Takach invested $2,000 into the business

Enter the date Enter the debit (i.e., on the first line write "cash" under the description heading on the extreme left justification of the description column and enter the amount of $2,000 on the same line in the debit column) [Note: Since the journal is not a formal financial statement, dollar signs are not used] Enter the credit (i.e., on the second line write the title of the account to be credited "Stephen Takach, Capital" indented one-half inch from the left side of the description column and enter the amount of $2,000 on the same line in the credit column Enter the explanation (i.e., the explanation of the entry is entered on the next line and is indented an additional one-half inch... in this case the explanation would read "Owner's original investment in the business" Enter the next transaction (i.e., to enter the next transaction skip a line and follow the same four steps noted above [Note: The month and year do not need to be repeated, however, the day of the month must be entered]

What is a slide error and what is a transposition error?

Slide error occurs when debit or credit amounts "slide" a digit or two to the left or right (i.e., entering $20 instead of $200) and transposition error occurs when two digits are reversed (i.e., entering 21,000 instead of 12,000)

What are the steps in posting in the ledger account?

Enter the date of the transaction in the Date column (i.e., June 1) Enter the debit (i.e., copy the $2,000 debit to cash in the journal to the Debit column of the ledger Enter the balance of the account (i.e., enter the $2,000 balance in the Balance columns under Debit [Note: If the balance of the account is zero, draw a line through the Debit and Credit columns) Enter the journal page in the Posting Reference column (i.e., enter "J1" in the Posting Reference column since the posting came from page 1 of the journal) Enter the ledger account number in the Posting Reference column (i.e., enter the account number for Cash [Note: The cash account is number 101 according to the chart of accounts] in the Posting Reference column of the journal on the same line as the debit to Cash for $2,000 [Note: This is the last step in the posting process and after this step is complete the posting references will indicate which journal entries have been posted to the ledger accounts which is very helpful if an individual is interrupted during the posting process]

What is journalizing?

Entering the transactions in a journal (Note: for every transaction, the entry should include the date, the title of each account affected, the amounts, and a brief description)

T/F The chart of accounts lists capital accounts first, followed by liabilities, assets, expenses, and revenue.

False (A, L, OE, R, E)

How does data flow from source documents to the trial balance?

Financial data comes from source documents and makes its way through the accounting information systems through the following steps: Analyze what happened by using information from source documents and the firm's chart of accounts enter business transactions in the general journal in the form of journal entries post these journal entries to the accounts in the general ledger prepare a trial balance

How should expenses be listed?

Following the chart of accounts or from highest to lowest amounts

What does the four-column general ledger account look like?

It has 2x debit and credit columns

What is the chart of accounts?

List of all accounts used by a business (Note: The accounts are arranged according to the accounting equation A = L + OE (i.e., A then L then OE on the left side of the chart of accounts, Revenues then Expenses on the right side of the chart of accounts)

What is the trial balance?

List used to prove that the totals of the debit and credit balances in the ledger accounts are equal

What does the trial balance do?

Proves the equality of the debits and credits in the ledger accounts

What does the general journal do?

Provides a record of all transactions completed by the business

How is the general ledger organized?

The accounts are numbered and arranged in the same order as the chart of accounts (i.e., accounts are numbered and grouped by classification to either assets, liabilities, owner's equity, revenues, and expenses)

What determines the order for listing accounts in the trial balance?

The chart of accounts determines the order for listing accounts in the general ledger and trial balance [Note: This order may also be used when preparing financial statements]

When should the correcting entry method be used?

The correcting entry method should be used if an incorrect entry has been journalized and posted to the wrong account (i.e., A $400 payment for Rent Expense was incorrectly debited to Repair Expense and correctly credited to Cash, this would require a correcting entry of $400 debit to Rent Expense and $400 credit to Repair expense with an explanation "to correct error in which payment for rent was debited to Repair Expense" in the general journal and the word "Correcting" is written in the Item column of the general ledger

What does the journal show?

The date of each transaction, titles of the accounts to be debited and credited, and the amounts of the debits and credits

What is one form of a general ledger account that can be posted to?

The four-column general ledger account

What information is included in the general ledger account that was not required for the T account?

The heading of the general ledger account has the account title and an account number (i.e., the account number is taken from the chart of accounts and is used in the posting process)

What is a cross-reference?

The information in the Posting Reference columns of the journal and general ledger that provides a link between the journal and general ledger

Is the Item column left blank or is it filled when posting to the ledger?

The item column is left blank except for special reasons such as indicated the beginning balance, adjusting entries, closing entries, or reversing entries

Why must information contained in the journal make its way into the ledger by posting?

The journal provides day-by-day record of business transactions, however to determine the specific balance of specific accounts, the information in the journal must be transferred to accounts similar to the T accounts (illustrated in Chapter 3) and this process is called POSTING (i.e., while the journal provides a day-by-day record of business transactions, the ledger provides a record of the transactions entered in each account)

How can an individual find and correct errors in the trial balance?

Try following tips from the book, or if the tips do not work, the individual must retrace steps through the accounting process (i.e., double checking addition for the ledger accounts and tracing all postings while being patient to search for the error) Tips for Finding Errors in the Trial Balance: Double-check addition (i.e., review balances to see if they are too large or too small relative to other accounts, or are entered in the wrong column) Find the difference between the debits and the credits If the difference is equal to the amount of a specific transaction, perhaps the debit or credit portion of this transaction was forgotten Divide the difference by 2 and if the difference is divisible by 2, then two debits or two credits may have been posted for the transaction (i.e., if a debit was posted as a credit, it would mean that one transaction had two credits and no debits with the difference between the total debits and credits would be twice the amount of the debit that was posted as a credit) Divide the difference by 9 and if the difference is evenly divisible by 9, a slide error (i.e., amount "slides" a digit to the left or right" or transposition error (i.e., two digits have been reversed) may have occurred Slide Error Example: If $250 was entered as $25, then $250-$25 = $225 and $225/9 = $25 (evenly divisible indicates a potential error) Transposition Error Example: If $250 was entered as $520, then $520-$250 = $27- and $270/9 = $30 (evenly divisible indicates a potential error)

A general journal entry that affects more than two accounts is known as _____

compound entry

A method of correcting an entry in which an entry to correct an incorrect entry that has been journalized and posted to the wrong account is known as _____

correcting entry method

The information in the Posting Reference columns of the journal and ledger that provides a link between the journal and the ledger is known as _____

cross-reference

A complete set of all the accounts used by a business that accumulates a complete record of debits and credits made to each account as a result of entries made in the journal is known as _____

general ledger