You are on page 1of 43

College Accounting

A Contemporary Approach
Fourth Edition

Chapter 4
The General
Journal and the
General Ledger

Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or
distribution without the prior written consent of McGraw-Hill Education.

Learning Objectives
SECTION 1: The General Journal
4-1 Record transactions in the general journal.
4-2 Prepare compound journal entries.
SECTION 2: The General Ledger
4-3 Post journal entries to general ledger
accounts.
4-4 Correct errors made in the journal or ledger.
4-5 Define the accounting terms new to this
chapter.

Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or 4-2
distribution without the prior written consent of McGraw-Hill Education.

The Accounting Cycle
Step 1: Analyze and classify transactions
Step 2: Journalize transactions
Step 3: Post transactions to the ledger
Step 4: Prepare a worksheet
Step 5: Prepare financial statements
Step 6: Journalize adjusting entries
Step 7: Journalize closing entries
Step 8: Prepare a post closing trial balance
Step 9: Evaluate and communicate financial
information

Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or 4-3
distribution without the prior written consent of McGraw-Hill Education.

Section 1: The General Journal

Learning Objective 4-1: Record
transactions in the general
journal.

Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or 4-4
distribution without the prior written consent of McGraw-Hill Education.

All rights reserved. . • Transactions are entered in the journal in chronological order.Section 1. Journal • A journal is a diary of business activities. Objective 4-1: Record transactions in the general journal. Copyright © 2017 McGraw-Hill Education. No reproduction or 4-5 distribution without the prior written consent of McGraw-Hill Education. • There are different types of accounting journals.

Objective 4-1: Record transactions in the general journal. • Classify the accounts affected. All rights reserved.Section 1. Record the complete entry in general journal form. • Determine the amount of increase or decrease for each account affected. 2. . Apply the rules of debit and credit. No reproduction or 4-6 distribution without the prior written consent of McGraw-Hill Education. • Identify the accounts affected. Make the entry in T-account form. Let’ look at one Copyright © 2017 McGraw-Hill Education. Analyze the financial event. • Which account is debited? For what amount? • Which account is credited? For what amount? 3. 4. Recording a Business Transaction (1 of 3) 1.

Objective 4-1: Record transactions in the general journal. Copyright © 2017 McGraw-Hill Education. Recording a Business Transaction (2 of 3) Transaction: On November 6.Section 1.000 from personal savings and deposited it in a new business checking account for Eli’s Consulting Services. Trayton Eli withdrew $100. All rights reserved. . No reproduction or 4-7 distribution without the prior written consent of McGraw-Hill Education.

Recording a Business Transaction (3 of 3) Transaction: On November 6. No reproduction or 4-8 distribution without the prior written consent of McGraw-Hill Education. .000 from personal savings and deposited it in a new business checking account for Eli’s Consulting Services.Section 1. Trayton Eli withdrew $100. Copyright © 2017 McGraw-Hill Education. All rights reserved. Objective 4-1: Record transactions in the general journal.

No reproduction or 4-9 distribution without the prior written consent of McGraw-Hill Education.000 to purchase a computer and other equipment. All rights reserved. Objective 4-1: Record transactions in the general journal. Cash Purchase of Equipment On November 7. Eli’s Consulting Services issued Check 1001 for $5. Copyright © 2017 McGraw-Hill Education.Section 1. .

. No reproduction or 4-10 distribution without the prior written consent of McGraw-Hill Education. Purchase of Equipment on Credit On November 10.Section 1. Objective 4-1: Record transactions in the general journal. Copyright © 2017 McGraw-Hill Education. Eli’s Consulting Services purchased office equipment on account for $6.000. All rights reserved.

. No reproduction or 4-11 distribution without the prior written consent of McGraw-Hill Education.500. Objective 4-1: Record transactions in the general journal. Eli’s Consulting Services purchased supplies for $1. All rights reserved. Check 1002. Cash Purchase of Supplies On November 28.Section 1. Copyright © 2017 McGraw-Hill Education.

Objective 4-1: Record transactions in the general journal. • Remember.Section 1. No reproduction or 4-12 distribution without the prior written consent of McGraw-Hill Education. Check 1003.500 in partial payment of Invoice 2223. . All rights reserved. in the general journal. always enter debits before credits! Copyright © 2017 McGraw-Hill Education. Payment to a Creditor On November 30. Eli’s Consulting Services paid Office Plus $2.

All rights reserved. Copyright © 2017 McGraw-Hill Education. No reproduction or 4-13 distribution without the prior written consent of McGraw-Hill Education. Recording a Prepayment of Rent On November 30. . Eli’s Consulting Services wrote Check 1004 for $8.000 to prepay rent for December and January.Section 1. Objective 4-1: Record transactions in the general journal.

Section 1. Objective 4-1: Record transactions in the general journal. Copyright © 2017 McGraw-Hill Education. Services Performed for Cash Eli’s Consulting performed services for $36.000 in cash. All rights reserved. . No reproduction or 4-14 distribution without the prior written consent of McGraw-Hill Education.

All rights reserved. Objective 4-1: Record transactions in the general journal. No reproduction or 4-15 distribution without the prior written consent of McGraw-Hill Education. .000.Section 1. Copyright © 2017 McGraw-Hill Education. Performed Services on Account Eli’s Consulting performed services on account for $11.

. Objective 4-1: Record transactions in the general journal.000 in cash from a credit client on account. Copyright © 2017 McGraw-Hill Education. All rights reserved.Section 1. Received Cash From Credit Clients Received $6. No reproduction or 4-16 distribution without the prior written consent of McGraw-Hill Education.

.000 for salaries. All rights reserved. No reproduction or 4-17 distribution without the prior written consent of McGraw-Hill Education. Paid Salaries Paid $8. Objective 4-1: Record transactions in the general journal.Section 1. Copyright © 2017 McGraw-Hill Education.

.Section 1. No reproduction or 4-18 distribution without the prior written consent of McGraw-Hill Education. Objective 4-1: Record transactions in the general journal. Paid Utility Bill Eli’s Consulting paid $650 in cash for a utility bill. Copyright © 2017 McGraw-Hill Education. All rights reserved.

Trayton Eli. All rights reserved. Copyright © 2017 McGraw-Hill Education. .000 from the company. No reproduction or 4-19 distribution without the prior written consent of McGraw-Hill Education. Objective 4-1: Record transactions in the general journal.Section 1. withdrew $5. Owner’s Withdrawal The owner.

All rights reserved. Section 1: The General Journal Learning Objective 4-2: Prepare Compound Journal Entries. No reproduction or 4-20 distribution without the prior written consent of McGraw-Hill Education. . Copyright © 2017 McGraw-Hill Education.

500. the firm purchased equipment for $5. Objective 4-2: Preparing compound entries. No reproduction or 4-21 distribution without the prior written consent of McGraw-Hill Education.000.Section 1. Preparing Compound Entries (1 of 2) Some transactions require a compound entry—a journal entry that contains more than one debit or credit. issued Check 1001 for $2. and agreed to pay the balance in 30 days. Copyright © 2017 McGraw-Hill Education. All rights reserved. . BUSINESS TRANSACTION: On November 7.

All rights reserved. Preparing Compound Entries (2 of 2) Remember: No matter how many accounts are affected by a transaction. Objective 4-2: Preparing compound entries. No reproduction or 4-22 distribution without the prior written consent of McGraw-Hill Education. Copyright © 2017 McGraw-Hill Education.Section 1. total debits must equal total credits. .

Section 2. • The process of transferring data from the journal to the ledger is known as posting. . • The third step of the accounting cycle is posting to the ledger. No reproduction or 4-23 distribution without the prior written consent of McGraw-Hill Education. All rights reserved. Ledgers • The ledger contains a separate form for each account. Copyright © 2017 McGraw-Hill Education.

. All rights reserved. Copyright © 2017 McGraw-Hill Education.Section 2. Posting QUESTION: What is posting? ANSWER: Posting is the process of transferring data from a journal to a ledger. No reproduction or 4-24 distribution without the prior written consent of McGraw-Hill Education.

Ledger Account Forms On the ledger account form shown below.Section 2. description. debit balance. credit. . and posting reference • Columns for debit. All rights reserved. and credit balance Copyright © 2017 McGraw-Hill Education. notice the: • Account name and number • Columns for date. No reproduction or 4-25 distribution without the prior written consent of McGraw-Hill Education.

No reproduction or 4-26 distribution without the prior written consent of McGraw-Hill Education. Copyright © 2017 McGraw-Hill Education. . All rights reserved.Section 2: The General Ledger Learning Objective 4-3: Post journal entries to general ledger accounts.

3. Enter a description of the entry.Section 2. Usually. enter the debit amount in the Debit column or the credit amount in the Credit column. 2. enter the general journal page in the Posting Reference column. Copyright © 2017 McGraw-Hill Education. No reproduction or 4-27 distribution without the prior written consent of McGraw-Hill Education. On the ledger form. All rights reserved. On the ledger form. Objective 4-3: Post journal entries to general ledger accounts Five Steps for Posting (1 of 2) 1. . routine entries do not require descriptions. On the ledger form. if necessary. enter the date of the transaction.

On the general journal. .Section 2. All rights reserved. No reproduction or 4-28 distribution without the prior written consent of McGraw-Hill Education. On the ledger form. enter the ledger account number in the Posting Reference column. 5. compute the balance and enter it in the Debit Balance column or the Credit Balance column. Copyright © 2017 McGraw-Hill Education. Objective 4-3: Post journal entries to general ledger accounts Five Steps for Posting (2 of 2) 4.

if necessary. Enter a description of the entry.Section 2. . Objective 4-3: Post journal entries to general ledger accounts Ledger Form (1 of 5) Step 1: On the ledger form. No reproduction or 4-29 distribution without the prior written consent of McGraw-Hill Education. routine entries do not require descriptions. Usually. All rights reserved. enter the date of the transaction. Copyright © 2017 McGraw-Hill Education.

Copyright © 2017 McGraw-Hill Education. All rights reserved. . No reproduction or 4-30 distribution without the prior written consent of McGraw-Hill Education.Section 2. The letter J refers to the general journal. enter the general journal page in the Posting Reference column. Objective 4-3: Post journal entries to general ledger accounts Ledger Form (2 of 5) Step 2: On the ledger form.

Objective 4-3: Post journal entries to general ledger accounts Ledger Form (3 of 5) Step 3: On the ledger form. Copyright © 2017 McGraw-Hill Education. .Section 2. All rights reserved. enter the debit amount in the Debit column or the credit amount in the Credit column. No reproduction or 4-31 distribution without the prior written consent of McGraw-Hill Education.

No reproduction or 4-32 distribution without the prior written consent of McGraw-Hill Education. . Copyright © 2017 McGraw-Hill Education.Section 2. All rights reserved. compute the balance and enter it in the Debit Balance column or the Credit Balance column. Objective 4-3: Post journal entries to general ledger accounts Ledger Form (4 of 5) Step 4: On the ledger form.

All rights reserved. No reproduction or 4-33 distribution without the prior written consent of McGraw-Hill Education. Objective 4-3: Post journal entries to general ledger accounts Ledger Form (5 of 5) Step 5: On the general journal. enter the ledger account number in the Posting Reference column. Copyright © 2017 McGraw-Hill Education. .Section 2.

The order is: • Assets • Liabilities • Owner’s equity • Revenue • Expenses This order of accounts speeds the preparation of the trial balance and the financial statements. Objective 4-3: Post journal entries to general ledger accounts General Ledger Accounts In the general ledger accounts. All rights reserved. . No reproduction or 4-34 distribution without the prior written consent of McGraw-Hill Education. Copyright © 2017 McGraw-Hill Education. the balance sheet accounts appear first and are followed by the income statement accounts.Section 2.

. No reproduction or 4-35 distribution without the prior written consent of McGraw-Hill Education. Copyright © 2017 McGraw-Hill Education. Section 2: The General Ledger Learning Objective 4-4: Correct errors made in the journal or ledger. All rights reserved.

• The method used to correct an error depends on whether or not the journal entry has been posted to the ledger. No reproduction or 4-36 distribution without the prior written consent of McGraw-Hill Education. Copyright © 2017 McGraw-Hill Education. All rights reserved. . Objective 4-4: Correct errors made in the journal or ledger. Journal and Ledger Errors • Sometimes errors are made when recording transactions in the journal.Section 2.

Section 2. erasures are not made in the journal. All rights reserved. . Correcting Journal and Ledger Errors • If an error is discovered before the entry is posted. • To ensure honesty and provide a clear audit trail. neatly cross out the incorrect item and write the correct data above it. Objective 4-4: Correct errors made in the journal or ledger. No reproduction or 4-37 distribution without the prior written consent of McGraw-Hill Education. Copyright © 2017 McGraw-Hill Education.

Objective 4-4: Correct errors made in the journal or ledger.Section 2. All rights reserved.000 in cash. • By mistake the journal entry debited the Office Equipment account rather than the Shop Equipment account. Error Correction Before Posting • On September 1 an automobile repair shop purchased some shop equipment for $18. . Copyright © 2017 McGraw-Hill Education. No reproduction or 4-38 distribution without the prior written consent of McGraw-Hill Education.

Copyright © 2017 McGraw-Hill Education. All rights reserved. .Section 2. No reproduction or 4-39 distribution without the prior written consent of McGraw-Hill Education. • The correct account Shop Equipment would be posted to the ledger in the usual manner. Objective 4-4: Correct errors made in the journal or ledger. Before Posting • The accountant would neatly cross out Office Equipment and write Shop Equipment above it.

• Note that erasures are never permitted in the journal or ledger. All rights reserved. a correcting entry is journalized and posted. Copyright © 2017 McGraw-Hill Education. • Do not erase or change the journal entry or the postings in the ledger accounts. Objective 4-4: Correct errors made in the journal or ledger. No reproduction or 4-40 distribution without the prior written consent of McGraw-Hill Education. Error Correction After Posting (1 of 4) • If the error is discovered after posting.Section 2. .

All rights reserved. • The debit was posted to the Office Equipment account in the general ledger. .000 by mistake. Objective 4-4: Correct errors made in the journal or ledger. No reproduction or 4-41 distribution without the prior written consent of McGraw-Hill Education.Section 2. • A correcting journal entry must be journalized and posted. Copyright © 2017 McGraw-Hill Education. Error Correction After Posting (2 of 4) • On September 1 an automobile repair shop debited Office Equipment rather than Shop Equipment for $18.

Copyright © 2017 McGraw-Hill Education. No reproduction or 4-42 distribution without the prior written consent of McGraw-Hill Education. All rights reserved. Error Correction After Posting (3 of 4) This erroneous journal entry was posted to the general ledger.Section 2. . Objective 4-4: Correct errors made in the journal or ledger.

Error Correction After Posting (4 of 4) • The correcting journal entry debits Shop Equipment and credits Office Equipment for $18. No reproduction or 4-43 distribution without the prior written consent of McGraw-Hill Education. • The entry transfers $18.Section 2. Objective 4-4: Correct errors made in the journal or ledger.000 out of the Office Equipment and into the Shop Equipment account. Copyright © 2017 McGraw-Hill Education. All rights reserved. .000.