General Journal  Writing off bad Debts

A general journal is essentially a book containing a listing of transactions for a  Opening Entries
particular business. Each transaction is recorded separately. Each recorded
 Closing Entries
transaction in the general journal is known as a journal entry. A single journal
 Adjustments to previous entries made in the ledgers
entry shows the (debits/credits) to the accounts for one transaction. The process
of recording accounting entries in the general journal is known as journalizing.  The correction of errors

The general journal is considered a book of original entry because each

transaction is first recorded there before the information is transferred (posted) to The Purchase Of Fixed Assets On Credit

the affected ledger accounts. Double entry Debit Asset A/c

Credit Creditor A/c

The Sale Of Fixed Assets On Credit

For each business transaction that occurs, you must record the following:
Double entry Debit Debtor A/c
Credit Asset A/c
 the date (day of month) - please note that the date must be recorded for
each transaction, even if there is more than one transaction on the same
Bad Debts
date
Bad debts are monies owed to the firm that they no longer expect to receive.
 the account(s) to be debited and the amount(s)
Debts are assets, but when they are not paid, it is a cost to the firm, therefore bad
 the account(s) to be credited and the amount(s) name of A/c must be debts is an expense, which means it is debited. The debtors a/c would then be
indented credited to cancel the debt.
 a brief line of explanation for the transaction called a Narrative. Double entry Debit Bad Debts A/c
 a blank line must exist between each journal entry Credit Debtors A/c

 debits always come first, credits second, line of explanation last for each
Opening Entries
entry
For, each new accounting period all opening entries of the assets and liabilities
 A folio column is usually included to show the ledgers transactions will be
(and resulting capital figure) is recorded. If the business is new it would consist of
transferred to.
all that the firm owns, owes and the owners investment at start up. If the business
is old, it would consist of all the balances brought down from the old accounting
Uses of the General Journal
period. Hence, it would consist of all opening balances.

 The Purchase and Sale of fixed Assets on credit.


Format
 Opening Assets are listed first and are usually debited then,
 Opening Liabilities are listed next and are usually credited and indented
 Opening capital is listed next and is usually credited. The amount may
2. Error of Commission - This is where we have entered the correct
amounts but in wrong person’s account. For example sales of goods to
Mr. A was entered in Mr. B account
3. Error of Principle -This is where an entry is made in the wrong class of

have to be calculated using the accounting equation: accounts. For example purchase of fixed asset is entered in expenses
account or sale of fixed asset such as building is entered in sales

Capital = Assets- Liabilities account

 The narrative would then be recorded.

4. Complete Reversal of Entries – this is where the entries are reversed,
we debit when we should credit and credit where we should debit. For
Adjustments
example we have received cash $500 from Mr. Z. The correct entry
These include changes to accounts that already exist in the ledgers. A complete
should be Cash-Debit and Mr. Z=Credit but we have recorded as Mr.
list is not available and adjustment usually includes some unusual entries. Eg. A
Z=Debit and Cash=Credit. However, the trial balance appears to be
debtor owes $200 and is unable to pay and offers a car in full settlement of the
balance.
debt.
Double entry Debit Car a/c
5. Error of Compensation - Errors that cancel the effects of each other.
Credit Debtor A/c
For example we might overstate purchases account by $20 and we can
Errors are usually recorded in the General Journal, Then transferred to Ledgers.
overstate sales account by $20 as well. Since we have added $20 to
There are two types of errors; those that cause the Trial Balance to disagree and
both debit and credit sides of trial balance, the agreement of trial balance
those that do not affect Trial balance agreement.
is still intact.

Errors Not affecting Trial Balance Agreement

6. Error of Original Entry - Entering wrong amount in correct accounts.
For example purchase of $100 was entered as $200 in the books of
The entry used to correct errors in the journal is referred as a rectifying entry
accounts. A $30 sale to Mr. Z was wrongly entered as $50 in sales
account and Mr. Z account
 There are many different types of errors which don’t affect the trial balance
agreement
7. Error of Transposition- Error of transposition can be defined as
switching the sequence of digits of amount or figure of a transaction. For
1. Error of Omission- This is where the full transaction is omitted from the
example sales amounts to $123 were entered as 321. A purchase of
books of accounts. 
 equipment worth $72 was entered as $27 in equipment account and Where only one distinct account is affect or only one side of an account is affected
and there is no other account identified, then it is a suspense error and the other
cash account respectively.
a/c used in double entry is the Suspense Account.

To correct errors Below is an example:

Errors # 1 To correct we make the entry accurately
Error # 2 & 3 we record the transaction in the correct a/c then we remove
transaction from the incorrect a/c by making an entry on the opposite side of the
incorrect a/c.
Error # 4 we reverse the incorrect entry and double the amount used.
Error # 5, 6 & 7 in all the above cases the incorrect amounts are being used. This
amount may be and overstated (More than the amount that should be used) or
The trial balance at December 31, 2009 for Wally West showed a difference
reflecting a shortage of $100 on the credit side. A suspense account is opened
and the difference of $100 is put to the credit side of the account. Net Profit was
calculated to be $20,000.
March 5 of 2010 the following errors were found from the previous years errors.
(a)  Credit purchases to K. Kenny $250 entered as $100 to both accounts.

Understated (Less than the amount that should be used)
To correct an Overstatement
Enter the difference on the opposite side of the respective a/cs. If the entry was
on the debit side, credit the a/c to correct and vice versa.
To correct an Understatement
Just add the difference to the respective accounts on the correct sides
(b)  Cash sales $550 entered correctly to cash account but incorrectly entered to
sales account as $500.
(c)  Drawings from bank $750 entered correctly to drawings account, but omitted
from bank account.
(d)  Cash received from a debtor D. Marvin $1200 is correctly entered to cash
account, but credited to  D. Marvin’s account as $1900.

Suspense A/cs and Errors

When the trial balance totals do not agree and the errors cannot be found
immediately the difference is put to an interim account called the Suspense
Account, until the errors are located. The suspense account balance is entered in
the Trial Balance on the same side of the balance in the suspense account. If the
errors are not located by the end of the financial period, then the suspense
account will be entered in the Balance Sheet. Whenever the errors are located
they are taken from the Suspense Accounts and corrected in the account
containing the error.

Types of Errors entered in The Suspense Account.

 Incorrect Additions ( Overstatement or Understatement)

 Entry on only one side of an account
 Corrected Net Profit xxx

Bank Reconciliation

Banks usually send customers a monthly statement that shows all transactions
that affect the account's balance during the month, and the account's ending
balance. A company's balance at bank on its Bank Statement and its Bank
balance in the Cash Book usually do not match. This is due to the fact that, at any
particular date, checks may be outstanding; deposits may be in transit to the
bank, errors may have occurred etc. Therefore companies have to carry out a
bank reconciliation process which prepares a statement accounting for the
difference between the cash balance in company's cash account and the cash
balance according to its bank statement.

Following are the transactions which usually appear in Cash Book Bank Columns
but not in the bank statement:
 

Once the Journal Entries are made to show the corrections the Net Profit made  Deposits in Transit/ Late Lodgments : Deposits which have been sent

need to be adjusted to show corrections also. This is done Using a Statement of by the company to the bank but have not been received by the bank in

Corrected Net Profit. time for the issuance of bank statement.

Format  Checks Outstanding/ Unpresented Cheques: Checks which have

Statement of Corrected Net Profit for the Year ended 31 December 20xx been issued by the company as payments but were not presented or
$ $ cleared before the issuance of bank statement.
Net Profit xxxx
Add Expenses Overstated xxx Following are the transactions which usually appear in bank statement but not in
Add Revenues Understated xxx xxx company's Cash Book Bank columns:
Xxx
Less Revenues Overstated xxx  Bank Charges or Interest Paid: Service charges or interest may have
Less Expenses Understated xxx xxx been deducted by the bank. Such charges are usually not known to the
company before the issuance of bank statement.
  Interest Received: If any interest income has been earned by the Xxx
company on its bank account, it is not usually entered in company's cash
Less Late Lodgments xxx
account before the issuance of bank statement.
 Dishonored Cheques: Bounced Checks. These are the checks Balance as per Bank Statement xxx
deposited by the company in bank account but the bank is unable to
Format #2
receive payment on those checks due to insufficient funds in the payer's
account.
Bank Reconciliation Statements as at 31 December 2005
 Standing Orders – A Firm instructs the bank to make regular payments
on certain dates to persons on the firm’s behalf. Eg Mortgages, Overdraft as per Cash Book xxx

Insurance.
Add Late Lodgments xxx
 Direct Debit- A firm allows its creditors to collect payment directly from
their bank a/c. This is where the amounts may differ from time to time. Xxx

Eg Electricity and Telephone bills

Less Unpresented Cheques xxx
 Credit Transfer- Creditors pay their bills by depositing payments directly
to the businesses bank a/c. Balance as per Bank Statement xxx

Format #3
Items/Transactions identified on the Bank statement but not in company's
Cash Book Bank columns are entered in the cash Book to update it.
Bank Reconciliation Statements as at 31 December 2005

Items/Transactions identified on the company's Cash Book Bank columns Balance as per Bank Statement xxx
but not in the Bank Statement are used to prepare the Bank Reconciliation
Add Late Lodgments xxx
Statement.

Xxx
Format #1
Less Unpresented Cheques xxx
Bank Reconciliation Statements as at 31 December 2005
Balance as per Cash Book xxx
Balance as per Cash Book xxx

Add Unpresented Cheques xxx

Control Accounts
A Control account is used as a Trial balance for each ledger to check for errors. Return Outwards Return Outwards Journal

Cash and Cheques Paid Cash Book

The Principle is that if we know the opening Balance for the a/c as well as the
additions and deductions, the closing Balance can be calculated. Discount Received Cash book

Sales Ledger Control Accounts/Total Debtors Control Accounts Closing Creditors List of Creditors at the end of the
accounting period

Source of Information Add or Debit all items that decreases Creditors figure. opening debit
Balance, cash or cheques Paid, return Outwards, Discount Recieved, Set
off, closing Credit balance.
Opening Debtors List of Debtors from the previous period

Deduct or credit all items that increases Creditors figure Opening credit
Credit Sales Sales Journal
Balance, Credit Purchases, closing credit balance.

Return Inwards Return Inwards Journal

Cash and Cheques Received Cash Book

Discount allowed Cash book

Closing Debtors List of Debtors at the end of the accounting period

Add or Debit all items that increases debtors figure. Opening Debit Balance,
Credit Sales, Interest on Debt, Overpayment amounts or refunds,
Dishonored cheques, closing credit balance.

Deduct or credit all items that decreases debtors figure opening credit
Balance, cash or cheques Received, return Inwards, Bad debts, Discount
Allowed, Set off, closing debit balance.

Purchases Ledger Control Accounts/Total Creditors Control Accounts

Source of Information

Opening Creditors List of creditors from the previous period

Credit Purchases Purchases Journal