88 REDCHOPSTICKS/GETTY IMAGES 4. Post separate amounts from a journal to a general ledger. 5. Post column totals from a journal to a general ledger. 6. Analyze and journalize correcting entries. After studying Chapter 4, you will be able to: 1. Define accounting terms related to posting from a journal to a general ledger. 2. Identify accounting concepts and practices related to posting from a journal to a general ledger. 3. Prepare a chart of accounts for a service business organized as a proprietorship. CHAPTER 4 Posting to a General Ledger O B J E C T I V E S K E Y T E R M S • ledger • general ledger • account number • file maintenance • opening an account • posting • correcting entry www.C21accounting.com Point Your Browser ( ) 88 Copyright 2009 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part.
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88
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4. Post separate amounts from a journal to a general ledger.
5. Post column totals from a journal to a general ledger.
6. Analyze and journalize correcting entries.
After studying Chapter 4, you will be able to:
1. Define accounting terms related to posting from a journal to a general ledger.
2. Identify accounting concepts and practices related to posting from a journal to a general ledger.
3. Prepare a chart of accounts for a service business organized as a proprietorship.
Copyright 2009 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part.
L E S S O N
4-1Preparing a Chart of Accounts
TechKnow Consulting records transactions in a journal, as described in Chapter 3. A journal is a permanent record of the debit and credit parts of each transaction with transac-tions recorded in chronological order. However, a journal does not show, in one place, all the changes in a single account.
If only a journal is used, a business must search through all journal pages to find items affecting a single account balance. For this reason, a form is used to summarize in one place all the changes to a single account. A separate form is used for each account.
A C C O U N T F O R M
“A man should be upright, not
be kept upright.” This famous
statement by Marcus Aure-
lius suggests that, in a
perfect world, everyone
would always do the
right thing. In the real
world, however, gov-
ernments have been
forced to create com-
plex systems of laws
to force individuals to
adhere to the social norm
of right and wrong. We rely
on these laws for our protec-
tion as well as the orderly opera-
tion of our society. For example, think
about the chaos that might result if individ-
uals could choose which side of the road to drive on!
Many laws are common knowledge for individuals
working in business:
• Employers may not discriminate on the basis of
national origin.
• Customers may not be charged different prices for the
same item.
• Taxes must be paid to the government.
Whether an action is legal is not always so obvious. Did
you know:
• It may be illegal to sell certain items, such as comput-
ers and oil, to countries that violate global norms of
conduct.
• An interviewer may not ask a prospective employee if
he or she has children.
• Companies with more than $10 million in assets hav-
ing more than 500 owners must file annual and other
periodic reports with the government.
No one can be expected to know every law that might
affect the operation of a business. To assist its managers,
businesses hire lawyers to provide their managers with
legal advice. Most large businesses have their own legal
departments staffed with lawyers. Smaller businesses typi-
cally pay a retainer fee to an independent lawyer to provide
legal advice when needed. All businesses should provide
their managers with regular training on legal issues. Man-
agers should be encouraged to consult the lawyers if there
is any question whether an action might be illegal.
InstructionsUse an Internet or library source to prepare a list of ques-
tions that are illegal for an employer to ask during a job
Copyright 2009 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part.
R E L AT I O N S H I P O F A T A C C O U N T T O A N A C C O U N T F O R M
An account form is based on and includes the debit and credit sides of a T account. In addition to debit and credit columns, space is provided in the account form for record-ing the transaction date and journal page number. This information can be used to trace a specific entry back to where a transaction is recorded in a journal. The major disadvantage of the account form illustrated above is that no current, up-to-date account balance is
shown. If this form is used, an up-to-date balance must be calculated each time the account is examined. When an account has a large number of entries, the balance is dif-ficult and time consuming to calculate. Therefore, a more commonly used account form has Debit and Credit Bal-ance columns, as shown below.
Because the form has columns for the debit and credit balance, it is often referred to as the balance-ruled account form. The account balance is calculated and recorded as each entry is recorded in the account. Recording information in an account is described later in this chapter. The T account is a useful device for analyzing transactions into debit and credit parts. However, the balance-ruled account form is more useful than the T account as a permanent record of changes to account balances. TechKnow Consulting uses the balance-ruled account form.
DATE ITEM POST.REF.
ACCOUNT
DEBIT CREDIT
Information needed to trace entry back to journal page
A group of accounts is called a ledger. A ledger that contains all accounts needed to prepare financial state-ments is called a general ledger. The name given to an account is known as an account title. The number assigned to an account is called an account number.
Preparing a Chart of AccountsA list of account titles and numbers showing the location of each account in a ledger is known as a chart of accounts.
TechKnow Consulting’s chart of accounts is shown above. For ease of use while studying the chapters in Part 1, TechKnow Consulting’s chart of accounts is also shown on page 3. Accounts in a general ledger are arranged in the same order as they appear on financial statements. TechKnow Consulting’s chart of accounts shows five general ledger divisions: (1) Assets, (2) Liabilities, (3) Owner’s Equity, (4) Revenue, and (5) Expenses.
A C C O U N T N U M B E R S
TechKnow Consulting assigns a three-digit account num-ber to each account. For example, Supplies is assigned the number 150, as shown. The first digit of each account number shows the gen-eral ledger division in which the account is located. For example, the asset division accounts are numbered in the 100s. Therefore, the number for the asset account, Supplies, begins with a 1.
The second two digits indicate the location of each account within a general ledger division. The 50 in the account number for Supplies indicates that the account is located between account number 140 and account num-ber 160.
Supplies
General ledger division Location within general ledger division
Copyright 2009 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part.
Assigning Account NumbersTechKnow Consulting initially assigns account numbers by 10s so that new accounts can be added easily. Nine numbers are unused between each account on TechKnow Consulting’s chart of accounts. For example, numbers 111 to 119 are unused between accounts numbered 110 and 120. New numbers can be assigned between exist-ing account numbers without renumbering all existing accounts. The procedure for arranging accounts in a general ledger, assigning account numbers, and keeping records current is called file maintenance. Unused account numbers are assigned to new accounts. TechKnow Consulting records payments for gasoline in Miscellaneous Expense. If Ms. Park found that the amount paid each month for gasoline had become a major expense, she might decide to use a separate account. The account might be titled Gasoline Expense. TechKnow Consulting arranges expense accounts in alphabetic order in its gen-eral ledger. Therefore, the new account would be inserted between Advertising Expense and Insurance Expense.
The number selected for the new account should leave some unused numbers on either side of it for other accounts that might need to be added. The middle, unused account number between existing numbers 510 and 520 is 515. Therefore, 515 is assigned as the account number for the new account.
When an account is no longer needed, it is removed from the general ledger and the chart of accounts. For example, if TechKnow Consulting were to buy its own equipment and building, there would be no need for the rent expense account. The account numbered 540 would be removed, and that num-ber would become unused and available to assign to another account if the need should arise. When a new account is added at the end of a ledger division, the next number in a sequence of 10s is used. For example, suppose TechKnow Consulting needs to add another expense
account, Water Expense, to show more detail about one of the utility expenses. The expense accounts are arranged in alphabetic order. Therefore, the new account would be added at the end of the expense section of the chart of accounts. The last used expense account number is 560, as shown on the chart of accounts. The next number in the sequence of 10s is 570, which is assigned as the number of the new account.
550 Supplies Expense (Existing account)560 Utilities Expense (Existing account)570 Water Expense (New Account)
TechKnow Consulting has relatively few accounts in its general ledger and does not anticipate adding many new accounts in the future. Therefore, a three-digit account number adequately provides for the few account numbers that might be added. However, as the number of general ledger accounts increases, a business may change to four or more digits. Charts of accounts with more than three digits are described in later chapters.
Copyright 2009 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part.
O P E N I N G A N A C C O U N T I N A G E N E R A L L E D G E R
Writing an account title and number on the heading of an account is called opening an account. A general ledger account is opened for each account listed on a chart of accounts. Accounts are opened and arranged in a general ledger in the same order as on the chart of accounts.
Cash, account number 110, is the first account on Tech-Know Consulting’s chart of accounts. The cash account is opened using the steps shown below. The same procedure is used to open all accounts listed on TechKnow Consult-ing’s chart of accounts.
Account Title
DATE ITEMBALANCE
DEBIT CREDIT
POST.REF.
ACCOUNT ACCOUNT NO.Cash
DEBIT CREDIT
110
Account Number1 2
1 Write the account title, Cash, after the word Account in the heading.
2 Write the account number, 110, after the words Account No. in the heading.
S T E P S OPENING AN ACCOUNT IN A GENERAL LEDGER
In the ancient civilizations of Asia Minor
and northern Africa, most citizens were
illiterate. The scribe, who could read
and write, became a very important
person in the society. Of ancient
Hebrew origin, the scribe has been
called the forerunner of today’s
accountant.
Public scribes often recorded
transactions as citizens arrived to
do business. Most scribes recorded
transactions on moist clay tablets
that were then dried in the sun. There-
fore, permanent records of transactions
were not possible until scribes could write
them down on clay tablets.
The Greeks invented coined money around 630 B.C.,
which facilitated assigning values to transactions.
The Babylonians in Asia Minor used an early form of
banking. They transferred funds with a system resembling
our modern-day checking accounts, one of the first uses of
business documents.
These early practices provided the foundation for
today’s financial system and recordkeeping methods.
Critical Thinking
1. Estimate how many transactions might occur in a
single day in a modern grocery store with which you
are familiar.
2. List the number of different methods of payments that
Accts. Rec.—Tyler Link Insurance Expense Sales Clara Ross, Capital
Accts. Pay.—Mid City Supplies Prepaid Insurance Supplies Rent Expense
Accts. Rec.—Megan Alvarez Clara Ross, Drawing Supplies Expense
1. Prepare a chart of accounts. Arrange expense accounts in alphabetical order. Use 3-digit account numbers and number the accounts within a division by 10s.
2. Two new accounts, Postage Expense and Utilities Expense, are to be added to the chart of accounts prepared in Instruction 1. Assign account numbers to the two new accounts.
3. Using the account form in the Working Papers, open Cash.
Preparing a chart of accounts and opening an account
Forms are given in the Working Papers. Work this problem independently.
Eric Roen owns a service business called Roen’s Hair Care, which uses these accounts.
Accts. Pay.—Milton Company Supplies Expense Cash Delivery Expense
Accts. Rec.—Superior Supplies Insurance Expense Sales Accts. Pay.—North Star
1. Prepare a chart of accounts. Arrange expense accounts in alphabetical order. Use 3-digit account numbers and number the accounts within a division by 10s.
2. Two new accounts, Gasoline Expense and Water Expense, are to be added to the chart of accounts prepared in Instruction 1. Assign account numbers to the two new accounts.
3. Using the account form in the Working Papers, open Delivery Expense.
Copyright 2009 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part.
L E S S O N
4-2
Posting Separate Amounts from a Journal to a General Ledger
P O S T I N G A N A M O U N T F R O M A G E N E R A L D E B I T C O L U M N
Transferring information from a journal entry to a led-ger account is called posting. Posting sorts journal entries so that all debits and credits affecting each account are brought together. For example, all changes to Cash are brought together in the cash account. Amounts in journal entries are recorded in either gen-eral amount columns or special amount columns. There are two rules for posting amounts from a journal: (1) Sep-arate amounts in a journal’s general amount columns are posted individually to the account written in the Account Title column. (2) Separate amounts in a journal’s special amount columns are not posted individually. Instead, the special amount column totals are posted to the account named in the heading of the special amount column.
Posting a Separate Amount from a General Debit ColumnFor most journal entries, at least one separate amount is posted individually to a general ledger account. When an entry in a journal includes an amount in a general amount column, the amount is posted individually. Each separate amount in the General Debit and Gen-eral Credit columns of a journal is posted to the account written in the Account Title column.
JOURNAL PAGE 11 2 3 4
2
3
2
3
DATE ACCOUNT TITLE DOC.NO.
POST.REF.
GENERAL
DEBIT CREDIT
SALESCREDIT
CASH
DEBIT CREDIT
5
3 Supplies 2 7 5 00 2 7 5 00C1 150
ACCOUNT NO. 150
DATE ITEMBALANCE
DEBIT CREDIT
Aug. 3 2 7 5 00 2 7 5 00
POST.REF.
120--
ACCOUNT Supplies
DEBIT CREDIT
Account Balance
DateDebit Amount
Account Number
Journal Page Number
35
4
2
1
S T E P S
POSTING AN AMOUNT FROM A GENERAL DEBIT COLUMN
PreviousBalance
$0.00
Debit ColumnAmount$275.00
New DebitBalance$275.00
�
�
�
�
1 Write the date, 20--, Aug. 3, in the Date column of the account Supplies.
2 Write the journal page number, 1, in the Post. Ref. column of the account. Post. Ref. is an abbreviation for Posting Reference.
3 Write the debit amount, $275.00, in the Debit amount column.
4 Write the new account balance, $275.00, in the Balance Debit column. Because this entry is the first in the Supplies account, the previous balance is zero.
5 Return to the journal and write the account number, 150, in the Post. Ref. column of the journal.
Copyright 2009 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part.
1 Write the date, 7, in the Date column of the account. The month and year are written only once on a page of a ledger account, unless the month or year changes.
2 Write the journal page number, 1, in the Post. Ref. column of the account.
3 Write the debit amount, $500.00, in the Debit amount column.
4 Write the new account balance, $775.00, in the Balance Debit column.
5 Return to the journal and write the account number, 150, in the Post. Ref. column of the journal.
S T E P S POSTING A SECOND AMOUNT TO AN ACCOUNT
Previous DebitBalance$275.00
Debit ColumnAmount$500.00
New DebitBalance$775.00
�
�
�
�
R E M E M B E R
Each separate amount in the General Debit and Credit columns of a journal is posted individually.
Therefore, the totals of these columns are not posted.
P O S T I N G A S E C O N D A M O U N T T O A N A C C O U N T
JOURNAL PAGE 11 2 3 4
2
4
5
6
7
2
4
5
6
7
DATE ACCOUNT TITLE DOC.NO.
POST.REF.
GENERAL
DEBIT CREDIT
SALESCREDIT
CASH
DEBIT CREDIT
5
3
7
Supplies
SuppliesAccts. Pay.—Supply Depot
2 7 5 00
5 0 0 005 0 0 00
2 7 5 00C1
M1
150
150
ACCOUNT NO. 150
DATE ITEMBALANCE
DEBIT CREDIT
Aug. 37
2 7 5 005 0 0 00
2 7 5 007 7 5 00
POST.REF.
11
20--
ACCOUNT Supplies
DEBIT CREDIT
Date Debit Amount Account Number
Journal Page Number
3
4
2
1 5
Account Balance
The numbers in the Post. Ref. columns of the general led-ger account and the journal serve three purposes: (1) An entry in an account can be traced to its source in a journal. (2) An entry in a journal can be traced to where it was posted in an account. (3) If posting is interrupted, the accounting personnel can easily see which entries in the journal still need to be posted. A blank in the Post. Ref.
column of the journal indicates that posting for that line still needs to be completed. Therefore, the posting refer-ence is always recorded in the journal as the last step in the posting procedure. The same five steps are followed when a second amount is posted to an account.
Posting Separate Amounts from a Journal to a General Ledger Lesson 4-2 97
Copyright 2009 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part.
L E S S O N
4-3
Posting Column Totals from a Journal to a General Ledger
C H E C K M A R K S S H O W T H AT A M O U N T S A R E N O T P O S T E D
Journal Entries That Are Not Posted Individually Several lines in TechKnow Consulting’s journal contain amounts that are not to be posted individually. These include forwarding totals and amounts recorded in special amount columns. The totals brought forward from page 1 are shown on line 1 of the journal. None of these separate total amounts on line 1 are posted individually to gen-eral ledger accounts. To assure that no postings are over-looked, no blank posting reference spaces should be left in the Post. Ref. column of the journal. Therefore, when the totals were forwarded to page 2 of the journal, a check mark was placed in the Post. Ref. column of line 1 to show that no separate amounts are posted individually. Separate amounts in the special amount columns—Sales Credit, Cash Debit, and Cash Credit—are not posted individually. For example, on line 13 of the jour-nal, two separate $190.00 amounts are recorded in two special amount columns, Sales Credit and Cash Debit. A check mark was placed in the Post. Ref. column on line 13 when the entry was journalized. The check mark
indicates that no separate amounts are posted individually from this line. Instead, the totals of the special amount columns are posted.
Totals of General Debit and General Credit Amount Columns The General Debit and General Credit columns are not special amount columns because the column headings do not contain the name of an account. All of the sepa-rate amounts in the General Debit and General Credit amount columns are posted individually. Therefore, the column totals are not posted. A check mark in parentheses is placed below each general amount column total as shown. The check mark indicates that the total of the General Debit column is not posted. A check mark in the Post. Ref. column indicates that no amounts on that line are posted individually. On the totals line, the amounts in the special amount columns are posted. Therefore, a check mark is not placed in the Post. Ref. column for the totals line.
JOURNAL PAGE 21 2 3 4
1
13
14
15
16
17
1
13
14
15
16
17
DATE ACCOUNT TITLE DOC.NO.
POST.REF.
GENERAL
DEBIT CREDIT
SALESCREDIT
CASH
DEBIT CREDIT
5
Aug.20--
20
313131
Brought Forward
�
Miscellaneous ExpenseTotals
3 5 4 3 00
8 004 3 5 1 00
5 7 5 0 00
5 7 5 0 00
1 9 6 0 00
1 9 0 00
3 5 6 5 00
6 7 1 0 00
1 9 0 00
8 3 1 5 00
2 5 4 3 00
8 003 3 5 1 00
T31M3
�
�
(�) (�)
Check mark indicates thatamounts ARE NOT postedindividually. Check marks indicate that
Copyright 2009 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part.
P O S T I N G T H E T O TA L O F T H E S A L E S C R E D I T C O L U M N
Separate amounts in special amount columns are not posted individually. The separate amounts are part of the special amount column totals. Only the totals of special amount columns are posted. TechKnow Consulting’s journal has three special amount columns for which only totals are posted: Sales Credit, Cash Debit, and Cash Credit. The Sales Credit column of a journal is a special amount column with the account title Sales in the heading. Each separate amount in a special amount column could be posted individually. However, all of the separate amounts
are debits or credits to the same account. Therefore, an advantage of a special amount column is that only the column total needs to be posted. For example, 16 sepa-rate sales transactions are recorded in the Sales Credit col-umn of TechKnow Consulting’s August journal. Instead of making 16 separate credit postings to Sales, only the column total is posted. As a result, only one posting is needed, which saves 15 postings. The smaller number of postings means 15 fewer opportunities to make a post-ing error. Posting special amount column totals saves time and results in greater accuracy.
JOURNAL PAGE 21 2 3 4
15
16
17
18
15
16
17
18
DATE ACCOUNT TITLE DOC.NO.
POST.REF.
GENERAL
DEBIT CREDIT
SALESCREDIT
CASH
DEBIT CREDIT
5
31 Totals 4 3 5 1 00
(�) (�) (410)
5 7 5 0 00 3 5 6 5 00 8 3 1 5 00 3 3 5 1 00
ACCOUNT NO. 410
DATE ITEMBALANCE
DEBIT CREDIT
Aug. 31 3 5 6 5 00 3 5 6 5 00
POST.REF.
220--
ACCOUNT Sales
DEBIT CREDIT
Date Column Total Account Number
Account Balance
Journal Page Number
4
2
1 53
PreviousBalance
$0.00
Credit ColumnAmount$3,565.00
New CreditBalance
$3,565.00
�
�
�
�
1 Write the date, 20--, Aug. 31, in the Date column of the account Sales.
2 Write the journal page number, 2, in the Post. Ref. column of the account.
3 Write the column total, $3,565.00, in the Credit amount column.
4 Write the new account balance, $3,565.00, in the Balance Credit column.
5 Return to the journal and write the account number in parentheses, (410), below the Sales Credit column total.
S T E P S POSTING THE TOTAL OF THE SALES CREDIT COLUMN
Posting Column Totals from a Journal to a General Ledger Lesson 4-3 101
Copyright 2009 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part.
P O S T I N G T H E T O TA L O F T H E C A S H C R E D I T C O L U M N
The Cash Credit column of a journal is a special amount column with the account title Cash in the heading. The Cash Credit column is posted using the following steps.
JOURNAL PAGE 21 2 3 4
15
16
17
18
15
16
17
18
DATE ACCOUNT TITLE DOC.NO.
POST.REF.
GENERAL
DEBIT CREDIT
SALESCREDIT
CASH
DEBIT CREDIT
5
31 Totals 4 3 5 1 00
(�) (�) (410) (110)
5 7 5 0 00 3 5 6 5 00 8 3 1 5 00 3 3 5 1 00
ACCOUNT NO. 110
DATE ITEMBALANCE
DEBIT CREDIT
Aug. 3131
8 3 1 5 00 8 3 1 5 00
POST.REF.
22
20--
ACCOUNT Cash
DEBIT CREDIT
(110)
3 3 5 1 00 4 9 6 4 00
Date
Column Total
Account Number
Account Balance
Journal Page Number
4
2
1
3
5
Previous DebitBalance
$8,315.00
Credit ColumnAmount$3,351.00
New DebitBalance
$4,964.00
�
�
�
�
R E M E M B E R
Whenever the debits in an account exceed the credits,
the account balance is a debit. Whenever the credits in an
account exceed the debits, the account balance is a credit.
1 Write the date, 31, in the Date column of the account Cash.
2 Write the journal page number, 2, in the Post. Ref. column of the account.
3 Write the column total, $3,351.00, in the credit amount column.
4 Write the new account balance, $4,964.00, in the Balance Debit column.
5 Return to the journal and write the account number in parentheses, (110), below the Cash Credit column total.
S T E P S POSTING THE TOTAL OF THE CASH CREDIT COLUMN
Posting Column Totals from a Journal to a General Ledger Lesson 4-3 103
Copyright 2009 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part.
L E S S O N
4-4
Completed Accounting Forms and Making Correcting Entries
J O U R N A L P A G E W I T H P O S T I N G C O M P L E T E D
Page 2 of TechKnow Consulting’s August journal is shown after all posting has been completed. With the exception of the Totals line, notice that the Post. Ref. Column is
completely filled in with either an account number or a check mark.
JOURNAL PAGE 21 2 3 4
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
DATE ACCOUNT TITLE DOC.NO.
POST.REF.
GENERAL
DEBIT CREDIT
SALESCREDIT
CASH
DEBIT CREDIT
5
Aug.20--
20212425262727282831
31313131
Brought Forward�
�
�
�
Utilities Expense�
Supplies�
Miscellaneous ExpenseAdvertising ExpenseKim Park, Drawing�
Miscellaneous ExpenseTotals
3 5 4 3 00
7 0 00
2 0 0 00
2 0 001 0 00
5 0 0 00
8 004 3 5 1 00
(�) (�) (410) (110) (110)
5 7 5 0 00
5 7 5 0 00
1 9 6 0 002 2 5 002 0 5 002 7 5 002 9 0 00
2 0 5 00
2 1 5 00
1 9 0 00
3 5 6 5 00
6 7 1 0 002 2 5 002 0 5 002 7 5 002 9 0 00
2 0 5 00
2 1 5 00
1 9 0 00
8 3 1 5 00
2 5 4 3 00
7 0 00
2 0 0 00
3 0 00
5 0 0 00
8 003 3 5 1 00
T21T24T25T26C10T27C11T28C12
C13T31M3
�
�
�
�
�
560�
150�
530510320�
530
G E N E R A L L E D G E R W I T H P O S T I N G C O M P L E T E D
After all posting from the August journal is com-pleted, TechKnow Consult-ing’s general ledger is shown here and on the next several pages. The use of the accounts Income Summary, Insur-ance Expense, and Supplies Expense is described in Chapter 6.
ACCOUNT NO. 110
DATE ITEMBALANCE
DEBIT CREDIT
Aug. 3131
8 3 1 5 003 3 5 1 00
8 3 1 5 004 9 6 4 00
POST.REF.
22
20--
ACCOUNT Cash
CREDITDEBIT
ACCOUNT NO. 120
DATE ITEMBALANCE
DEBIT CREDIT
Aug. 19 1 0 0 00 1 0 0 00
POST.REF.
120--
ACCOUNT Petty Cash
DEBIT CREDIT
Completed Accounting Forms and Making Correcting Entries Lesson 4-4 105
Copyright 2009 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part.
M E M O R A N D U M F O R A C O R R E C T I N G E N T R Y
Errors discovered before entries are posted may be cor-rected by ruling through the item, as described in Chapter 3. However, a transaction may have been improperly jour-nalized and posted to the ledger. In such a case, the incor-rect journal entry should be corrected with an additional journal entry, called a correcting entry.
If an accounting error is discovered, a memorandum is prepared as the source document describing the correc-tion to be made.
Signed: Date:
MEMORANDUM No. 15
A cash payment of $140.00 for advertising,October 30, 20--, was debited in error toMiscellaneous Expense.
Kim Park November 13, 20--
J O U R N A L E N T R Y T O R E C O R D A C O R R E C T I N G E N T R Y
JOURNAL PAGE
1 2 3 4
22
23
24
22
23
24
DATE ACCOUNT TITLE DOC.NO.
POST.REF.
GENERAL
DEBIT CREDIT
SALESCREDIT
CASH
DEBIT CREDIT
5
13 Advertising ExpenseMiscellaneous Expense
1 4 0 00M15
Date Debit
Source Document
1 4 0 00
7
2
Credit 43
1
Miscellaneous Expense
140.00
Advertising Expense
140.00
November 13. Discovered that a payment of cash for advertising in October was
journalized and posted in error as a debit to Miscellaneous Expense instead of Advertising
Expense, $140.00. Memorandum No. 15.
To correct the error, an entry is made to add $140.00 to the advertising expense account. The entry must also deduct $140.00 from the miscellaneous expense account. Because the advertising expense account has a normal debit balance, Advertising Expense is debited for $140.00 to show the increase in this expense account. The miscel-laneous expense account also has a normal debit balance. Therefore, Miscellaneous Expense is credited for $140.00 to show the decrease in this expense account.
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E n d o f L e s s o n
REVIEW1. What is a correcting entry?
2. When is a correcting entry necessary?
3. When an amount is journalized and posted as a debit to an incorrect expense account, why is the amount of the correcting entry debited to the correct expense account?
4. When an amount is journalized and posted as a debit to an incorrect expense account, why is the amount of the correcting entry credited to the incorrect expense account?
A U D I T Y O U R U N D E R S T A N D I N G
W O R K T O G E T H E R 4 4
Journalizing correcting entries
A journal is given in the Working Papers. Your instructor will guide you through the following example.
Transactions: Nov. 1. Discovered that a transaction for supplies bought last month was journalized and posted in error
as a debit to Prepaid Insurance instead of Supplies, $60.00. M15. 1. Discovered that a transaction for rent expense for last month was journalized and posted in error
as a debit to Repair Expense instead of Rent Expense, $550.00. M16.
1. Journalize each correcting entry discovered during November of the current year. Use page 21 of the journal.
O N Y O U R O W N 4 4
Journalizing correcting entries
A journal is given in the Working Papers. Work this problem independently.
Transactions: June 1. Discovered that a transaction for supplies bought last month was journalized and posted in error
as a debit to Prepaid Insurance instead of Supplies, $150.00. M23. 1. Discovered that a transaction for utilities expense for last month was journalized and posted in error
as a debit to Miscellaneous Expense instead of Utilities Expense, $850.00. M24.
1. Journalize each correcting entry discovered during June of the current year. Use page 11 of the journal.
correcting entry
T E R M R E V I E W
Completed Accounting Forms and Making Correcting Entries Lesson 4-4 109
Accounts Payable—Dakota Company Prepaid Insurance Rent Expense Cash
Accounts Payable—Falls Supply Advertising Expense
Instructions:
1. Prepare a chart of accounts similar to the one described in this chapter. Arrange expense accounts in alphabetical order. Use 3-digit account numbers and number the accounts within a division by 10s.
2. Two new accounts, Delivery Expense and Telephone Expense, are to be added to the chart of accounts prepared in Instruction 1. Assign account numbers to the two new accounts.
3. Using the forms in the Working Papers, open the Prepaid Insurance and the Postage Expense accounts.
42 APPLICATION PROBLEMPosting separate amounts to a general ledger
A completed journal and general ledger accounts are given in the Working Papers. Alto Komoko owns a service business that uses the accounts given in the Working Papers.
Instructions:Post the separate amounts (on each line of the journal) that need to be posted individually. Save your work to complete Application Problem 4-3.
43 APPLICATION PROBLEM Posting column totals to a general ledger
Use the journal and general ledger from Application Problem 4-2.
Instructions:Post the journal’s special amount column totals.
The following errors were discovered after the incorrect entries were already journalized and posted.
Transactions: Apr. 1. Discovered that a transaction for utilities expense was journalized and posted in error as a debit
to Repairs Expense instead of Utilities Expense, $265.00. M66. 5. Discovered that a cash investment by Manuel Ricardo, owner, was journalized and posted in error
as a credit to Sales instead of Manuel Ricardo, Capital, $600.00. M67.
Instructions:Journalize each correcting entry discovered during April of the current year. Use page 7 of the journal given in the Working Papers.
45 MASTERY PROBLEMJournalizing transactions and posting to a general ledger
Patrick O’Kalla owns a service business called O’Kalla Law n and Garden. O’Kalla Lawn and Garden’s general ledger accounts are given in the Working Papers.
Transactions: Nov. 1. Received cash from owner as an investment, $5,500.00. R1. 3. Paid cash for supplies, $400.00. C1. 5. Received cash from sales, $900.00. T5. 6. Sold services on account to Merilda Domingo, $280.00. S1. 9. Paid cash for rent, $600.00. C2. 11. Paid cash for miscellaneous expense, $50.00. C3. 13. Bought supplies on account from Park Supplies, $240.00. M1. 13. Received cash from sales, $430.00. T13. 16. Paid cash for advertising, $143.00. C4. 18. Paid cash on account to Park Supplies, $140.00. C5. 20. Paid cash for electric bill, $230.00. C6. 20. Received cash on account from Merilda Domingo, $150.00. R2. 25. Paid cash for supplies, $150.00. C7. 27. Paid cash for supplies, $80.00. C8. 27. Received cash from sales, $2,100.00. T27. 30. Paid cash to owner for personal use, $500.00. C9. 30. Received cash from sales, $110.00. T30.
Instructions:
1. Open an account for Utilities Expense. Use the 3-digit numbering system described in the chapter.
2. Journalize the transactions completed during November of the current year. Use page 1 of a journal. Source documents are abbreviated as follows: check, C; memorandum, M; receipt, R; sales invoice, S; calculator tape, T.
3. Prove the journal.
4. Prove cash. The beginning cash balance on November 1 is zero. The balance on the next unused check stub is $6,897.00.
Copyright 2009 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part.
46 CHALLENGE PROBLEMPosting using a variation of the five-column journal
Frances Fessler owns a service business called HouseCare. HouseCare uses a five-column journal that is different from the journal used in this chapter. HouseCare’s March journal and general ledger accounts (before posting) are given in the Working Papers.
Instructions:
1. Post the separate amounts (on each line of the journal) that need to be posted individually.
2. Post the journal’s special amount column totals.
Instructions: Write a memorandum responding to the following scenario: Kim Park is at the bank, applying for a business loan. Ms. Park has just called you and asked that you fax or email her with the following information: Tech-Know Consulting’s asset, liability, owner’s equity, sales, and expense accounts, and their current balances. In your memorandum, include an introductory sentence or paragraph and end with a concluding statement.
A P P L I E D C O M M U N I C A T I O N
Trent Marvets does the accounting work for his business. When posting, he first transfers all of the information to the general ledger accounts. Then he returns to the journal and, all at one time, writes the account numbers in the Post. Ref. column of the journal. Eiko Harada also does the accounting work for her business. When posting, she writes all the account numbers in the Post. Ref. column of the journal before she transfers any information to the accounts. Is Mr. Marvets or Ms. Harada following the correct procedure? Explain your answer.
C A S E F O R C R I T I C A L T H I N K I N G
Journalizing transactions and posting to a general ledger
1. The journal for Darcia’s School of Dance is given in the Working Papers. Use page 1 of the journal to journalize the transactions for July.
2. Prove the journal.
3. Prove cash. The beginning cash balance on July 1 is zero. The balance on the next unused check stub is $6,576.00.
4. Rule the journal.
5. Post from the journal to the general ledger.
U S I N G S O U R C E D O C U M E N T S
In order to move into smaller markets, Best Buy has intentionally planned smaller stores, with 20,000 to 30,000 square feet as compared to the standard Best Buy showroom, which is 45,000 square feet. In order to calculate the average total retail square footage per U.S. Best Buy store, divide the total retail square footage by the number of stores. You will find this data in the 5-Year Financial Highlights on Appendix page B-2.
Instructions
1. Calculate the average total retail square footage per store for U.S. Best Buy stores for 2003 through 2007.
2. Is Best Buy succeeding on the goal of smaller stores?
A N A L Y Z I N G B E S T B U Y ’ S F I N A N C I A L S T A T E M E N T S
Copyright 2009 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part.
Accounting
SOFTWARE
In this chapter, you learned how to add a new account to a general ledger. The process of creating a new account in Peachtree is almost identical. 1. Select Maintain, Chart of Accounts from the menu bar.2. Key the account number in the Account ID field, and press Enter.3. Key the account title in the Description field, and press Enter.4. Select Expenses in the Account Type field.5. Click Save, and then click Close. Transactions can now be posted to the new account through Peachtree’s general journal. The new account will appear in the account list. When the transaction is saved, Peachtree automatically posts the transaction to the gen-eral ledger.
PEACHTREE MASTERY PROBLEM 451. Open (Restore) file 04-5MP.ptb.2. Before you start journalizing, add Account No. 540, Utilities Expense, to O’Kalla Lawn and Garden’s Chart of
Accounts. Journalize and post the November transactions using General Journal Entry from the menu bar and selecting Tasks.
3. From the menu bar, select Reports and then General Ledger to print the general journal.4. Print the general ledger from the Select a Report window.
C H A R T O F A C C O U N T S M A I N T E N A N C E ; J O U R N A L I Z I N G T R A N S A C T I O N S
In this chapter, you learned how to add a new account to a general ledger. The process of creating a new account in QuickBooks is almost identical. 1. Click on the Account drop-down box.2. Click on New to bring up the Add New Account dialog box.3. Select an account type and click on Continue.4. Enter the account number, name, and any other appropriate information.5. Click on Save and Close.
Posting Amounts to the General LedgerWhen you make journal entries, QuickBooks automatically posts the entries to the ledger accounts when you select Save and New or Save and Close.
QUICKBOOKS MASTERY PROBLEM 451. Open the O’Kalla Lawn and Garden file if it is not already open.2. Choose Make General Journal Entries from the Company menu, and enter the transactions. 3. Print the General Journal report from the Accountant & Taxes option from the Reports drop-down menu; choose
Journal and date the report November 30.4. Choose Company & Financial from the Reports drop-down menu; select Balance Sheet Standard, and print a
report dated November 30.
C H A R T O F A C C O U N T S M A I N T E N A N C E ; J O U R N A L I Z I N G T R A N S A C T I O N S
114 Chapter 4 Posting to a General Ledger114 Chapter 4 Posting to a General Ledger
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A basic knowledge of electronic spreadsheets is required to complete the exercises in this textbook. For purposes of the exercises in this textbook, you need to be able to:Open a workbook. Save the workbook.Enter numbers and text in a template. Print a work sheet.Enter a formula. Switch between work sheets. Enter a SUM function. Each template contains an Instructions work sheet that contains the exercise number and title followed by a detailed list of instructions. A second work sheet contains a template that you will complete by entering numbers and text. Whenever a cell contains [F], that means that you are to create a formula in that cell.
EXCEL ACTIVITY1. Access the spreadsheet files as instructed by your teacher.2. Open several of these files to get acquainted with the style of the workbooks and the types of tasks that you will
be performing.
B A S I C S P R E A D S H E E T S K I L L S
Chart of Accounts MaintenanceAccounts can be added, deleted, or changed. The Account Maintenance window will appear when you choose the Maintain Accounts menu item from the Data drop-down list or click on the Accts. toolbar button.
Adding a New Account1. Enter the account number in the Account column at the end of the list, then press the Tab key. 2. Enter the title for the new account.3. For a departmentalized business, enter the department number.4. Click the Add Account button.5. Click the Close button to exit the Accounts window.
Changing an Account Title1. Select the account that you wish to change.2. Enter the correct account title or department number.3. Click the Change button when the account title has been changed.
The account number cannot be changed. If an account number needs to be changed because of an incorrect account number, the account must be deleted, then added as a new account number.
Deleting an Account 1. Select the account that you wish to delete.2. Click the Delete button. General ledger accounts cannot be deleted unless the account has a zero balance. 3. Click the OK button.
Posting Amounts to the General LedgerIn automated accounting, journal entries are automatically posted by clicking the Post button or pressing the Enter key after a transaction is entered in a journal.
AUTOMATED ACCOUNTING APPLICATION PROBLEM 41Open file F04-1.AA8. Display the problem instructions and complete the problem.
AUTOMATED ACCOUNTING MASTERY PROBLEM 45Open file F04-5.AA8. Display the problem instructions and complete the problem.
C H A R T O F A C C O U N T S M A I N T E N A N C E ; J O U R N A L I Z I N G T R A N S A C T I O N S