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Journalize your company's transactions

Chapter Test

Journalizing Tutorial

In the last two chapters we analyzed business tranasctions into their debit and credit parts. After you decide which account to debit and which one to credit, it is time to record these transactions into a journal. This process is called journalizing.

All business transactions should first be recorded in a journal.
The journal provides a chronological record of these transactions.
The recording of the debit and credit parts of each transaction is called double-entry accounting.
The source documents, such as invoices, checks, receipts are used to decide the debit and credit parts that are recorded in a journal.
Instead of recording all business transactions in one journal, specialized journals are used.
They save time because more than one person can journalize at the same time.
The number of journals depends on the type and nature of the business.
Each journal is used for a separate kind of transaction. For example,
Purchases journal is used to record purchase of merchandise on account.
The cash receipts journal is for recording all receipts of cash from cash sales and received on account.
Cash payments journal is used to record all checks and withdrawls.
The sales journal is for charge sales only.
The general journal is used for all other types of entries that do not fit into the other four.

At first this might seem a little confusing, but as we go thru the transactions, it will be easier to understand.

There are five journals.
Each represent transactions that are recorded in a particular journal.
Examine the transactions in the columns to the right, then click on the links above for that journal to see how these transactions were journalized using Excel spreadsheets.
The transactions are for Bromley's Formal Wear.
The business transactions and journals represent transactions for the month of November.
When deciding on which account is debited and which one is credited, we must use our chart of accounts.
Do not just make up account titles.
Look at the chart of accounts for Bromley's Formal Wear prior to completing these exercises.

Bromley's Formal Wear
Chart of Accounts
Account Number	Account Name
ASSETS (1)
111	Cash
112	Accounts Receivable
113	Furniture and Fixtures
114	Accumulated Depreciation Furniture
115	Office Supplies
116	Other Assets
117	Office Equipment
118	Accumulated Depreciation Office Equipment
119	Prepaid Insurance
120	Inventory
LIABILITIES (2)
211	Notes Payable
212	Accounts Payable
213	Workers' Comp Payable
214	Federal Income Tax Payable
215	FICA Tax Payable
216	Medicare Payable
217	FUTA Payable
218	SUTA Payable
219	Sales Tax Payable
220	SDI Payable
221	State Income Tax Payable
222	State Training Tax Payable
STOCKHOLDERS' EQUITY (3)
311	Common Stock
312	Retained Earnings
REVENUE (4)
411	Sales
412	Sales Returns
412	Other Income
COST OF MERCHANDISE SOLD (5)
511	Purchases
512	Purchase Returns
EXPENSES (6)
611	Salary Expense
612	Rent Expense
613	Repairs Expense
614	Advertising Expense
615	Supplies Expense
616	Depreciation Expense
617	Insurance Expense
618	Miscellaneous Expense
619	Payroll Taxes Expense
620	Legal and Accounting expense
621	Utilties Expense
622	Alterations Expense
623	Interest Expense
624	Delivery Expense

Journalizing your company transactions

Now it is time to journalize your own company's business transactions.

Decide on which month, November or December.
Journalize all of your business transactions using the appropriate journal.
You can clear the data from the worksheet, by selecting the cells that contain the data that your want of delete, then press Delete Key.
All of the headings and formulas should remain intact.
You may modify the spreadsheet jounals before entering in your own company's information or your may choose to prepare manual journals.

Cash Receipts Journal Template
Cash Payment Journal Template
Sales Journal Template
Purchases Journal Template
General Journal Template

Cash Receipts Transactions

The cash receipts journal is a record of all cash received by a business.
This includes cash received from sales and sales tax collected.
Any deposit is listed here: business contract,cash sales
The journal also records money received from charge sale customers.
The general debit column is used to record for example, the sale of old office equipment, or other cash collected that is not directly related to the product or services sold by the company.
The source of information for the cash receipts journal is the check register or the on-line bank account.
Listed in the table below is a summary of the cash received.

Date	Transaction	Amount of Transaction
11-1	Business Contract	$180,025.09
11-1	Open House/Sales	$136,244.92
11-1	Open House/Sales Tax	$10,899.59

Now let us decide what accounts should be debited and which acounts should be credited.

The business contract:
1. Debit Cash $180,025.09
2. Credit Sales $180,025.09
3. Debits equal credits.
4. Click on the link in the projects box to see how this transaction was journalized.
Open House:
1. Debit Cash $147,144.51
2. Credit Sales $136,244.92
3. Credit Sales Tax Payable $10,899.59
4. Debits Equal credits.
5. Click on the link in the projects box to see how this transaction was journalized.

After all entries are made, the journal needs to be proved.
That means that all debit totals should equal all credit totals.
Total Sales, Total Sales Tax Payable and Accounts Receivable Credit and Notes Payable Credit totals should equal Cash Debit total.
If all debits do not equal credits, you should go back through your work to find your error.
The journal has a couple of formulas that verify that the journal is in balance.
See boxes C77 and C78

Cash Payments Transactions

The cash payment journal is to record cash disbursements.
Click on the link for the cash payments journal in the Projects Box.
It has 4 money columns: General Debit, Accounts Payable Debit Purchases Discount Credit and Cash Credit.
The other columns are used to record the date, document number, account title and posting reference.
Some of the transactions in the check-book are checks written.
Other withdrawals are paid electronically and are deducted from our account.
The chart of accounts is necessary when using the format of this cash payments journal.
In accounting, we work with the same number many times.
If we enter the same number, again and again, there is a great probability that we will enter it incorrectly.
The journal you will be looking at has you enter the cash credit amount, then key the the account number you want to debit.
That debited amount is then extended into the proper column and totaled for you, thus reducing the chance of error.
The last two entries involving the payroll are different. An account number is not entered.
Each amount is entered manually.
As in all journals, it must be in balance.
That means that all debits must equal all credits.
Two formulas have been entered at the bottom of the journal, that show if the journal is in balance.
If you are not in balance, you cannot continue with posting these amounts to the general ledger.

Here are the transactions (checks and electronic payments) that are recorded in the check register. This is the source for entries in cash payments journal. Deposits are not included since they are recorded in the cash receipts journal.

Date	Payee	Subject	Amount
11/01	Store Equipment Co.	CK 1101	$47,000
11/01	Staples	610119230	$3,800
11/01	David's Bridal	610119230	$100,000
11/01	Virtu Water	610119060	$87.50
11/01	Virtu Rent	610119117	$3,750
11/01	Virtu Gas	610119079	$87.50
11/01	Virtu Electric	610119087	$875.00
11/01	Cable	610119168	$100.00
11/01	Internet Service	610119192	$350.00
11/01	Virtu Insurance	610119133	$812.50
11/01	Virtual Loan	610119222	$2,163.54
11/01	Office Mart	610119230	$135
11/01	Eddies Tailoring	610119230	$131.75
11/01	Virtu Phone	610119109	$687.50
11/01	Federal Express	610119230	$25.00
11/01	Joe's Plumbing	610119230	$350.00
11/01	News Press	610119230	$500.00
11/01	Kerri Hall	610119230	$200.00
11/01	Eddie's Tailoring	610119230	$327.50
11/01	Channel 3	610119230	$500.00
11/01	Virtual Bank	610119230	$60,858.42
11/01	Franchise Tax	610119176	$21,933.76
11/01	Internal Revenue	610119184	$39,683.53
11/01	CEO pay-check		$5,102.56
11/01	CFO pay-check		$4,805.27
11/01	VP Sales pay-check		$3,699.34
11/01	VP Marketing pay-check		$3,699.34
11/01	VP Advertising pay-check		$3,699.34
11/01	VP HR pay-check		$3,699.34
11/01	VP Technology pay-check		$3,699.34
11/01	Adm Assist		$3,699.34
11/01	Sales Assist 1 pay-check		$2,736.84
11/01	Sales Assist 2 pay-check		$2,736.84
11/01	Sales Assist 3 pay-check		$2,736.84
11/01	Sales Assist 4 pay-check		$2,736.84
11/01	Sales Assist 5 pay-check		$2,736.84
11/01	Marketing Assist 1 pay-check		$2,736.84
11/01	Marketing Assist 2 pay-check		$2,736.84
11/01	Marketing Assist 3 pay-check		$2,736.84
11/01	Event Planner pay-check		$2,736.84
11/01	Payroll Clerk pay-check		$3,699.34
11/01	A/R Clerk 1 pay-check		$3,699.34
11/01	A/R Clerk 2 pay-check		$3,699.34
11/01	Human Resources Assist pay-check		$2,736.84
11/01	Banker pay-check		$3,699.34
11/01	Web Design pay-check		$2,736.84
11/01	IT assoc 1 pay-check		$2,736.84
11/01	IT assoc 2 pay-check		$2,736.84

On November 2 there are two amounts that need to be explained. This transaction involves paying on the Note, the money you borrowed from VE. The first amount, $655.54 is payment on the principal. The other amount, $1,508.00 is interest expense. Together the two add up $2,163.54 the amount listed in the check-book

Charge Sales Transactions

The Sales Journal is reserved for recording of charge sales.
Cash sales and credit card sales are journalized in the Cash Receipts Journal.
The charge sales that our company has so far are from orders placed on our web page.
During a trade show almost all of our sales will be charge sales.
There is a lot more paperwork relating to charge sales verses cash sales.
We need to keep track of the name of the customer, the amount of the sale, the sales tax, invoice number and the date.
The charge sales we have so far are:

Bromley's Charge Sales Journal
Date	Inv #	Customer Name	AR Debit	Sale Amount	Tax
11/1	1101	Jerome Stevens	$1,620.00	$1,500.00	$120.00
11/3	1102	Maryanne Thompson	$4,320.00	$4,000.00	$320.00
11/6	1103	Rob Jones	$704.97	$652.75	$52.22
11/7	1104	Jerome Stevens	$1,620.00	$1,500.00	$120.00
11/11	1105	David James	$378.00	$350.00	$28.00
11/15	1106	Charles Jameson	$648.00	$600.00	$48.00
11/20	1107	Janet Coy	$8,640.00	$8,000.00	$640.00

Verify that the sales journal is in balance. The total of the sales and sales tax must equal the accounts receivable debit total. Sales tax was calculated at 8%.

Purchases on Account Transactions

Remember that account name Purchases has a special meaning. We buy items from manufacturers, mark them up and then sell these items to our cusomers. If we purchase this merchandise for resale and pay cash, the transaction would go in the Cash Payments Journal. The Purchases Journal can also be used to buy other things on account.

We need to keep track of the date that this merchandise was ordered
the vendor's name
the amount of the purchases debit and the accounts payable credit
We had one purchase on account for 60,000 to Oscar de la Renta.
If you click on the link in the Project Box for the Purchases Journal, you can see this transaction.
The account credited information is for posting to the Accounts Payable Ledger
The AP ledger is where we keep track of amounts charged and owed by individual companies
In the next chapter we will learn about posting journal amounts to ledgers.
There three ledgers: general ledger, accounts receivable ledger and accounts payable ledgers.

Here is an example of buying office equipment on account
The Post Ref columns will be explained in the next lesson

Date	11/01
Inv #	1102
Account Credited	Staples
Accounts Payable Credit	$8,975.95
Purchases Debit	$8,975.95

General Journal

The general journal is the simplest of all journals. It has only two money columns, date, description and post reference columns. This journal is used to record transactions that are not normally journalized in one of the other four. Payroll entries, adjusting and closing entries, which will be explained later are journalized here. Other entries like the note payable, investments by owners, etc. are other types of transactions that are recorded in this journal.

Record Business loan $150,800.
- Debit Cash
- Credit Notes Payable
Record the $85,000 worth of common stock purchased by managers.
- Debit Cash
- Credit Common Stock
Payroll entry 1
The information for this entry comes from your payroll register.
The first entry is for the salary expense for all employees.
- The credit to cash represent the net pay for all employees.
- The debit to salaries represents the gross pay.
- The other credits are the deductions from employee paychecks.
Payroll entry 2 This entry is to record the employer's tax liablity.
- Debit Payroll Taxes Expense
- Credit Medicare
- Credit FICA
- Credit FUTA
- Credit SUTA
Record the entry for depreciation expense in the general journal.
- Debit Depreciation expense
- Credit Accoumulated depreciation forFurniture & Fixtures
- Credit Accumulated depreciation office equipment.

Click on the link for the general journal in the projects box.
Make sure that this journal is in balance. Scroll down to to see the debit and credit totals.

1. Recording the debit and credit parts of a business transaction is called? Posting Double entry accounting Proving the ledger	2. All business transactions first be recorded in? Journal Ledger Chart of Accounts
3. The kinds of journals described in this chapter are? Combination Journals Specialized Journals Progressive Journals	4. A purchases journal is used to? Record all cash payments Record all cash receipts Record purchase of merchandise on account