Journalizing Transactions

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4Journalizing TransactionsAFTER STUDYING CHAPTER 4, YOU WILL BE ABLE TO:1. Define accounting terms related to journalizing transactions.2. Identify accounting concepts and practices related to journalizingtransactions.3. Record in a five-column journal transactions to set up a business.4. Record in a five-column journal transactions to buy insurance forcash and supplies on account.5. Record in a five-column journal transactions that affect owner’sequity and receiving cash on account.6. Prove and rule a five-column journal and prove cash.TERMS PREVIEWjournaljournalizingspecial amountcolumngeneral amountcolumnentrydouble-entryaccountingsource documentcheckinvoiceJOURNALS AND JOURNALIZINGAs described in Chapter 3, transactions are analyzed into debit andcredit parts before information is recorded. A form for recording transactions in chronological order is called a journal. Recording transactions ina journal is called journalizing.Transactions could be recorded in the accounting equation. However,most companies wish to create a more permanent record by recordingtransactions in a journal.Each business uses the kind of journal that best fits the needs of thatbusiness. The nature of a business and the number of transactions to berecorded determine the kind of journal to be used.The word journal comes from the Latin diurnalis, meaning daily. Mostbusinesses conduct transactions every day. To keep from getting overloaded, the businesses will make entries in their accounting journalsevery day.sales invoiceFreceiptYmemorandumproving cash64IThe Small Business Administration (SBA)has programs that offer free managementand accounting advice to small businessowners. The SBA sponsors variousworkshops and publishes a variety of booklets for small business owners.

GNITNUOCCAAREERIN YOUR CDARDS FORHIGH STAN GINJOURNALIZforan has workedmffuHradSandays asvertising for 30dAaesuqarMon forclerk, a positian accountingonay owner, Ramanpd filesmcoethl, prepares anwhiches allaiizmalgrninuojotgeuhoed her. Sming andMarquesa, hirandles all incoh,ayderp50assigned.aboutamona, whother duties asotransactions,srmfoe journal to Rerthpdeddan,antshenramdwhate journal. Sanknow exactlyall source docuth’tenseiddtoraeddkona asher chair. Sanions asOne day Ramizing transactra fidgeted inaldrnanuSjoeilhhitwwpagesood a jobscanned a fewnot done as gadheshewnshe kYou haveto expect, butrnal, Sandra.ujoisthtuoe.ncerned abnow if theshe should havd said, “I’m coures. I don’t kasaneredshugosiermenuRamona thfor 20,000d I notice nne transactions in pencil, anonioisctthsaatanthtrlorder.awayrecorded alme are out ofcan see rightsoItduanbgs,nitsiedise crdates are mdebits equal th. Some of the00,0 2rfonheraround?”eethis situationce to improveshould have brnantuchetothoderehsuggest writy ita for givingWhat do youurnal the prioanked RamonjothethradginanSiv,gginthe future.ad not beenAfter apologizrealized she herformance inepsherhatethvroedplainwould imwork. She expcribe how sheesdtonotenwrequired andknows it isstrate that sheon:mgdeintoklinnaThurCriticaly about the jondra should saSakinthuyo1. What doake?ndra should mSakinimportant?thuyots doific improvemen2. What specCHAPTER 4 Journalizing Transactions65

Journals, Source Documents, and4-1 Recording Entries in a JournalA FIVE-COLUMN JOURNALJOURNAL1DATEACCOUNT TITLEDOC. ASHDEBITCREDIT112233Using a JournalEncore Music uses a journal that has fiveamount columns: General Debit, General Credit,Sales Credit, Cash Debit, and Cash Credit. Ajournal amount column headed with anaccount title is called a special amount column.These columns are used for frequentlyoccurring transactions. For example, most ofEncore Music’s transactions involve receipt orpayment of cash. A large number of thetransactions involve receipt of cash from sales.Therefore, Encore Music uses three specialamount columns in its journal: Sales Credit,Cash Debit, and Cash Credit. Using specialamount columns eliminates writing an accounttitle in the Account Title column and savestime.A journal amount column that is notheaded with an account title is called ageneral amount column. In Encore Music’sjournal, the General Debit and General Creditcolumns are general amount columns.AccuracyInformation recorded in a journal includesthe debit and credit parts of each transactionrecorded in one place. The information can beverified by comparing the data in the journalwith the transaction data.Chronological RecordTransactions are recorded in a journal in orderby date. All information about a transaction is66CHAPTER 4Journalizing Transactionsrecorded in one place, making the information fora specific transaction easy to locate.Double-Entry AccountingInformation for each transaction recorded ina journal is called an entry. The recording ofdebit and credit parts of a transaction is calleddouble-entry accounting. In double-entryaccounting, each transaction affects at least twoaccounts. Both the debit and the credit parts arerecorded, reflecting the dual effect of each transaction on the business’s records. Double-entryaccounting assures that debits equal credits.Source DocumentsA business paper from which information isobtained for a journal entry is called a sourcedocument. Each transaction is described by asource document that proves that the transactiondid occur. For example, Encore Music prepares acheck stub for each cash payment made. Thecheck stub describes information about the cashpayment transaction for which the check isprepared. The accounting concept, ObjectiveEvidence, is applied when a source document isprepared for each transaction. (CONCEPT:Objective Evidence)A transaction should be journalized only if itactually occurs. The amounts recorded must beaccurate and true. Nearly all transactions resultin the preparation of a source document. EncoreMusic uses five source documents: checks, salesinvoices, receipts, calculator tapes, andmemorandums.

CHECKS 1,577.00August 3,Quick Clean Supplies Co.NO. 1DateToFor20--Encore MusicSuppliesAugust 3,Quick Clean Supplies Co.One thousand five hundred seventy-seven and no100Date peoples national bankOTHER:-1,577.0020PAY TO THEORDER OF0 00AMT. DEPOSITED . . . 8 1 -- 10,000 00SUBTOTAL. . . . . . . . . . . . . . . . . . . 10,000 00BAL. BRO’T. FOR’D. . . . . . . . . . . .63-109631NO. 1530 Anoka AvenueTampa, FL 33601DOLLARSFor Classroom Use OnlyTampa, FL 33602SUBTOTAL. . . . . . . . . . . . . . . . . . .AMT. THIS CHECK . . . . . . . . . . . .BAL. CAR’D. FOR’D. . . . . . . . . . . .FOR10,000 001,577 008,423 00SuppliesBarbara Treviño 063101098 43 452119A business form ordering a bank to pay cashfrom a bank account is called a check. Thesource document for cash payments is a check.Encore Music makes all cash payments by check.The checks are prenumbered to help EncoreMusic account for all checks. Encore Music’srecord of information on a check is the checkstub prepared at the same time as the check. Acheck and check stub prepared by Encore Musicare shown in the illustration above.Procedures for preparing checks and checkstubs are described in Chapter 6.SALES INVOICESEncore MusicSold to:530 Anoka AvenueTampa, FL 33601DescriptionIndividual lessons on Aug. 12TotalKids TimeNo.1405 Michigan AvenueDate8/12/--Tampa, FL 33619Terms 30 daysAmount 200.00 200.00When services are sold on account, the sellerprepares a form showing information about thesale. A form describing the goods or servicessold, the quantity, and the price is called aninvoice. An invoice used as a source documentfor recording a sale on account is called asales invoice. A sales invoice is also referred toas a sales ticket or a sales slip.A sales invoice is prepared in duplicate. Theoriginal copy is given to the customer. The copyis used as the source document for the sale onaccount transaction. (CONCEPT: ObjectiveEvidence) Sales invoices are numbered insequence.CHAPTER 4 Journalizing Transactions67

OTHER SOURCE DOCUMENTSNo. 1Receipt No. 1August 1, 20 -DateFrom Barbara TreviñoFor InvestmentRec’dfrom August 1,Barbara TreviñoInvestmentForTen thousand and no/10010,000 00Amount 20--Dollars10,000 00Encore Music530 Anoka AvenueTampa, FL 33601ReceiptsA business form giving writtenacknowledgement for cash received is called areceipt. When cash is received from sourcesother than sales, Encore Music prepares aMEMORANDUMBarbara TreviñoReceived Byreceipt. The receipts are prenumbered to helpaccount for all of the receipts. A receipt is thesource document for cash received from transactions other than sales. (CONCEPT: ObjectiveEvidence)EncoreMusic530 Anoka AvenueTampa, FL 33601No. 1Bought supplies on account fromLing Music Supplies, 2,720.00Signed:Barbara TreviñoMemorandumsA form on which a brief message is writtendescribing a transaction is called amemorandum. When no other sourcedocument is prepared for a transaction, or whenan additional explanation is needed about atransaction, Encore Music prepares a memorandum. (CONCEPT: Objective Evidence) EncoreMusic’s memorandums are prenumbered to helpaccount for all of the memorandums. A briefnote is written on the memorandum to describethe transaction.Calculator TapesEncore Music collects cash at the timeservices are rendered to customers. At the end ofeach day, Encore Music uses a printing electronic68CHAPTER 4Journalizing TransactionsDate:August 7, 20--calculator to total the amount of cash receivedfrom sales for that day. By totaling all theindividual sales, a singlesource document is0.00 *produced for the total0- .00 12, 2 150.sales of the day. Thus,gu65.00 A.00 110time and space are saved2T1325.00 *by recording only oneentry for all of a day’ssales. The calculator tape is the source documentfor daily sales. (CONCEPT: Objective Evidence) Acalculator tape used as a source document isshown.Encore Music dates and numbers each calculator tape. For example, in the illustration, thenumber, T12, indicates that the tape is for thetwelfth day of the month.

RECEIVED CASH FROM OWNER AS AN 1Aug.DOC. POST.NO.REF.ACCOUNT TITLE1 Barbara Treviño, CapitalInformation for each transaction recorded ina journal is known as an entry. An entry consistsof four parts: (1) date, (2) debit, (3) credit, and(4) source document. Before a transaction isrecorded in a journal, the transaction is analyzedinto its debit and credit parts.Barbara Treviño, DEBITCREDIT10 0 0 0 001CreditThe source document for this transaction isReceipt No. 1. (CONCEPT: Objective Evidence)The analysis of this transaction is shown in theT accounts.The asset account, Cash, is increased by adebit, 10,000.00. The owner’s capital account,Barbara Treviño, Capital, is increased by a credit, 10,000.00.F10,000.00310 0 0 0 003Cash2GENERALR1August 1. Received cash from owner as aninvestment, 10,000.00. Receipt No. 1.Debit2YIDollars and cents signs and decimal pointsare not used when writing amounts onruled accounting paper. Sometimes a colortint or a heavy vertical rule is used onprinted accounting paper to separate thedollars and cents columns.Journalizing cash received from owner as an investment1. Date. Write the date, 20—, Aug. 1, in the Date column. This entry is the first one on this journal page.Therefore, the year and month are both written for this entry. Neither the year nor the month are writtenagain on the same page.2. Debit. The journal has a special amount column for debits to Cash. Write the debit amount, 10,000.00,in the Cash Debit column. The title of the account is in the column heading. Therefore, the account title doesnot need to be written in the Account Title column.3. Credit. There is no special amount column with the title of the account credited, Barbara Treviño, Capital,in its heading. Therefore, the credit amount, 10,000.00, is recorded in the General Credit column. Inorder to indicate what account is to be credited for this amount, write the title of the account, BarbaraTreviño, Capital, in the Account Title column. (All amounts recorded in the General Debit or General Creditamount columns must have an account title written in the Account Title column.)4. Source document. Write the source document number, R1, in the Doc. No. column. The sourcedocument number, R1, indicates that this is Receipt No. 1. (The source document number is a crossreference from the journal to the source document. If more details are needed about this transaction, aperson can refer to Receipt No. 1.)CHAPTER 4 Journalizing Transactions69

PAID CASH FOR SUPPLIES2Debit3JOURNALPAGE1DATE2DOC. POST.NO.REF.ACCOUNT TITLE3 Supplies1C123CREDITSALESCREDITGENERALDEBIT1 5 7 7 004DateCreditAugust 3. Paid cash for supplies, 1,577.00.Check No. 1.Supplies1,577.00154CASHDEBITCREDIT1 5 7 7 00Source DocumentThe source document for this transaction isCheck No. 1. (CONCEPT: Objective Evidence) Theanalysis of this transaction is shown in theT accounts.The asset account, Supplies, is increased by adebit, 1,577.00. The asset account, Cash, isdecreased by a credit, 1,577.00.Cash1,577.00FYSTEPSJournalizing cash paid for suppliesIf you draw T accounts for analyzing transactions, it will make journalizing easier.I1. Date. Write the date, 3, in the Date column.This is not the first entry on the journal page.Therefore, the year and month are not written for this entry.2. Debit. There is no special amount column with the title of the account debited,Supplies, in its heading. Therefore, the debit amount, 1,577.00, is recorded inthe General Debit column. In order to indicate what account is to be debited forthis amount, write the title of the account, Supplies, in the Account Titlecolumn.3. Credit. The journal has a special amount column for credits to Cash.Write the credit amount, 1,577.00, in the Cash Credit column. The titleof the account is in the column heading. Therefore, the account title doesnot need to be written in the Account Title column.4. Source document. Write the source document number, C1, in the Doc.No. column. The source document number, C1, indicates that this is CheckNo. 1.R E M E M B E RWhen an account such as Cash is used frequently, it can be time-consuming to write the account title over and over.Using a special amount column for a frequently used account saves time.70CHAPTER 4Journalizing Transactions2

TAERMSERMSREVIEWREVIEWjournaljournalizingspecial amountcolumngeneral amountcolumnentrydouble-entryaccountingUDIT YOURUNDERSTANDINGsourcedocumentcheckinvoicesales invoicereceiptmemorandum1.In what order are transactions recordedin a journal?2.Why are source documents important?3.List the four parts of a journal entry.WORKTOGETHERJournalizing entries into a five-column journalA journal is given in the Working Papers. Your instructor will guide you through the followingexample.Ruth Muldoon owns Muldoon Copy Center, which uses the following accounts:CashPrepaid InsuranceRuth Muldoon, DrawingAccts. Rec.—Lester Dodge Accts. Pay.—Ron’s SuppliesSalesSuppliesRuth Muldoon, CapitalMiscellaneous ExpenseTransactions: Apr. 1. Received cash from owner as an investment, 7,000.00. R1.2. Paid cash for supplies, 425.00. C1.4.Rent ExpenseUtilities ExpenseJournalize each transaction completed during April of the current year. Use page 1 of the journal. Source documents are abbreviated as follows: check, C; memorandum, M; receipt, R; salesinvoice, S; calculator tape, T. Save your work to complete Work Together on page 75.ON YOUROWNJournalizing entries into a five-column journalA journal is given in the Working Papers. Work this problem independently.Gale Klein owns Klein’s Service Center, which uses the following accounts:CashPrepaid InsuranceGale Klein, DrawingAccts. Rec.—Connie Vaughn Accts. Pay.—Osamu Supply Co. SalesSuppliesGale Klein, CapitalAdvertising ExpenseTransactions: June 2 Received cash from owner as an investment, 1,500.00. R1.3. Paid cash for supplies, 35.00. C1.5.Miscellaneous ExpenseRent ExpenseJounalize each transaction completed during June of the current year. Use page 1 of thejournal. Source documents are abbreviated as follows: check, C; memorandum, M; receipt, R;sales invoice, S; calculator tape, T. Save your work to complete On Your Own on page 75.CHAPTER 4 Journalizing Transactions71

Journalizing Buying Insurance, Buying on4-2 Account, and Paying on AccountPAID CASH FOR INSURANCE2DebitJOURNALPAGE1DATEACCOUNT TITLE4 Prepaid Insurance31DOC. POST.NO.REF.C23CREDITSALESCREDITGENERALDEBITAugust 4. Paid cash for insurance, 1,200.00.Check No. 2.Prepaid Insurance1,200.00CashSource DocumentTEPSJournalizing cash paid for insurance1. Date. Write the date, 4, in the Date column.2. Debit. There is no special amount column with the title of theaccount debited, Prepaid Insurance, in its heading. Therefore, thedebit amount, 1,200.00, is recorded in the General Debit column.In order to indicate what account is to be debited for this amount,write the title of the account, Prepaid Insurance, in the Account Title column.3. Credit. The journal has a special amount column for credits to Cash.Write the credit amount, 1,200.00, in the Cash Credit column. The title ofthe account is in the column heading. Therefore, the account title does notneed to be written in the Account Title column.4. Source document. Write the source document number, C2, in theDoc. No. column.R E M E M B E RAll amounts recorded in the General Debit or General Credit amount columnsmust have an account title written in the Account Title column.72CHAPTER 4Journalizing TransactionsCASHDEBITCREDIT1 2 0 0 0033CreditThe source document for this transaction isCheck No. 2. (CONCEPT: Objective Evidence) Theanalysis of this transaction is shown in theT accounts.The asset account, Prepaid Insurance, isincreased by a debit, 1,200.00. The assetaccount, Cash, is decreased by a credit, 1,200.00.1,200.00S1541 2 0 0 004Date2

BOUGHT SUPPLIES ON ACCOUNT12DateDebitJOURNAL3PAGE1DATE7 Accts. Pay.—Ling Music Supplies2,720.00PSCREDIT45action immediately. Therefore, a memorandumis prepared that shows supplies received onaccount.The source document for this transaction isMemorandum No. 1. (CONCEPT: ObjectiveEvidence) The analysis of this transaction isshown in the T accounts.The asset account, Supplies, is increased by adebit, 2,720.00. The liability account, AccountsPayable—Ling Music Supplies, is increased by acredit, 2,720.00Encore Music ordered these supplies by telephone. Encore Music wishes to record this trans-EDEBITSource DocumentAugust 7. Bought supplies on account fromLing Music Supplies, 2,720.00. MemorandumNo. 1.T5CASH2 7 2 0 004S142 7 2 0 00Accts. Pay.—Ling Music Supplies52GENERALDOC. POST.NO.REF.ACCOUNT TITLECreditF YJournalizing supplies bought on account1. Date. Write the date, 7, in the Date column.2. Debit. There is no special amount column with the title of the accountdebited, Supplies, in its heading. Therefore, the debit amount, 2,720.00,is recorded in the General Debit column. In order to indicate what accountis to be debited for this amount, write the title of the account, Supplies, inthe Account Title column.3. Credit. Again, there is no special amount column with the title of theaccount credited, Accounts Payable—Ling Music Supplies, in its heading.Therefore, the credit amount, 2,720.00, is recorded on the next journalline in the General Credit column. In order to indicate what account is tobe credited for this amount, write the title of the account, AccountsPayable—Ling Music Supplies, in the Account Title column on the sameline as the credit amount.This entry requires two lines in the journal because account titles for boththe debit and credit amounts must be written in the Account Title column.4. Source document. Write the source document number, M1, in the Doc.No. column on the first line of the entry.IOf all servicebusinesses in theUnited States, only 4percent employ 50or more people and80 percent havefewer than 10employees.CHAPTER 4 Journalizing Transactions73

PAID CASH ON ACCOUNT2DebitJOURNALPAGE1DATE6DOC. POST.NO.REF.ACCOUNT TITLE11 Accts. Pay.—Ling Music Supplies C31August 11. Paid cash on account to LingMusic Supplies, 1,360.00. Check No. 3.Accts. Pay.—Ling Music RALDEBIT154CASHDEBIT1 3 6 0 004Date2CREDIT1 3 6 0 003Source DocumentCreditThe source document for this transaction isCheck No. 3. (CONCEPT: Objective Evidence) Theanalysis of this transaction is shown in the Taccounts.The liability account, Accounts Payable—LingMusic Supplies, is decreased by a debit, 1,360.00.The asset account, Cash, is decreased by a credit, 1,360.00.MARY WITHERSPOONn high school, Mary M.Witherspoon consideredpursuing a degree inaccounting. Her career choice wasconfirmed by ACCUMATION, acareer education program for highschool students sponsored by theDallas Chapter of the Texas Society ofCPAs. Students participate in thisweek-long summer program, whichincludes visits to an internationalaccounting firm and the chance to sitin on university accounting classes.Mary graduated with a BBA inAccounting and works for OryxEnergy Company, a largeindependent producer of oil and gasin Dallas. Currently in gas balancingaccounting, she reconciles records ofjointly owned properties to ensureOryx receives their entitled gasvolumes. Working in the corporateenvironment has allowed Mary toIACCOUNTINGWORK74AT6change job responsibilities over hercareer to gain additional experience.Mary believes that exceptionalpeople skills coupled with technicalexperience is the formula for businesssuccess. People skills includewritten and verbal communication,respecting diversity, and the abilityto work in teams.Mary also serves as a districtvice-president of the AmericanBusiness Women’s Association(ABWA). ABWA promotes theadvancement of women in business bysponsoring continuing education, providing leadership training, and offering encouragement.“High school students can contacttheir state or local society of certifiedpublic accountants for accountingcareer information,” says Mary. “WeCPAs support programs to encouragestudent interest in our field.”

AUDIT YOURUNDERSTANDING1.Which journal columns are used to record paying cash for insurance?2.Which journal columns are used to record buying supplies on account?3.Which journal columns are used to record paying cash on account?WORKTOGETHERJournalizing entries into a five-column journalUse the journal that you started for Work Together on page 71. Your instructor will guide youthrough the following example.Ruth Muldoon owns Muldoon Copy Center, which uses the following accounts:CashPrepaid InsuranceRuth Muldoon, DrawingAccts. Rec.—Lester DodgeAccts. Pay.—Ron’s SuppliesSalesSuppliesRuth Muldoon, CapitalMiscellaneous ExpenseTransactions: Apr. 5. Bought supplies on account from Ron’s Supplies, 300.00. M1.7. Paid cash for insurance, 600.00. C2.9. Paid cash on account to Ron’s Supplies, 300.00. C3.4.Rent ExpenseUtilities ExpenseJournalize the transactions continuing on the next blank line of page 1 of the journal. Saveyour work to complete Work Together on page 81.ON YOUROWNJournalizing entries into a five-column journalUse the chart of accounts above and the journal that you started for On Your Own on page 71.Work this problem independently.Gale Klein owns Klein’s Service Center, which uses the following accounts:CashPrepaid InsuranceGale Klein, DrawingMiscellaneous ExpenseAccts. Rec.—Connie Vaughn Accts. Pay.—Osamu Supply Co. SalesRent ExpenseSuppliesGale Klein, CapitalAdvertising ExpenseTransactions: June 5. Paid cash for insurance, 100.00. C2.9. Bought supplies on account from Osamu Supply Co., 155.00. M1.10. Paid cash on account to Osamu Supply Co., 155.00. C3.5.Journalize the transactions continuing on the next blank line of page 1 of the journal. Saveyour work to complete On Your Own on page 81.CHAPTER 4 Journalizing Transactions75

4-3Journalizing Transactions That Affect Owner’sEquity and Receiving Cash on AccountRECEIVED CASH FROM SALESJOURNAL3PAGE1DATE712 1T12DEBITSource DocumentCash325.00Sales325.00The source document for this transaction isCalculator Tape No. 12. (CONCEPT: ObjectiveTEPSCREDITSALESCREDIT3 2 5 00August 12. Received cash from sales, 325.00. Tape No. 12.S3 4Date2GENERALDOC. POST.NO.REF.ACCOUNT TITLECredit154CASHDEBITCREDIT3 2 5 0027DebitEvidence) The analysis of this transaction isshown in the T accounts.The asset account, Cash, is increased by adebit, 325.00. The revenue account, Sales, isincreased by a credit, 325.00.The reason that Sales is increased by a creditis discussed in the previous chapter. Theowner’s capital account has a normal credit balance. Increases in the owner’s capital accountare shown as credits. Because revenue increasesowner’s equity, increases in revenue arerecorded as credits. A revenue account,therefore, has a normal credit balance.Journalizing cash received from sales1. Date. Write the date, 12, in the Date column.2. Debit. The journal has a special amount column for debits to Cash. Write the debit amount, 325.00, inthe Cash Debit column. The title of the account is in the column heading. Therefore, the account title does notneed to be written in the Account Title column.3. Credit. The journal also has a special amount column for credits to Sales. Write the credit amount, 325.00, in the Sales Credit column. The title of the account is in the column heading. Therefore, theaccount title does not need to be written in the Account Title column.Because both amounts for this entry are recorded in special amount columns, no account titles are writtenin the Account Title column. Therefore, a check mark is placed in the Account Title column to show that noaccount titles need to be written for this transaction. A check mark is also placed in the Post. Ref. column.The use of the Post. Ref. column is described in Chapter 5.4. Source document. Write the source document number, T12, in the Doc. No. column.R E M E M B E RIn double-entry accounting, each transaction affects at least two accounts. At least one account will be debited and atleast one account will be credited.76CHAPTER 4Journalizing Transactions

SOLD SERVICES ON ACCOUNT2DebitJOURNALPAGE1DATEACCOUNT TITLE12 Accts. Rec.—Kids Time813CREDITSALESCREDITGENERALDOC. POST.NO.REF.DEBITS12 0 0 004Date2Accts. Rec.—Kids Time200.00Sales200.00CASHDEBITCREDIT2 0 0 003Source DocumentAugust 12. Sold services on account to KidsTime, 200.00. Sales Invoice No. 1.1548CreditThe source document for this transaction isSales Invoice No. 1. (CONCEPT: ObjectiveEvidence) The analysis of this transaction isshown in the T accounts.The asset account, Accounts Receivable—KidsTime, is increased by a debit, 200.00. Therevenue account, Sales, is increased by a credit, 200.00.Journalizing services sold on accountS1. Date. Write the date, 12, in the Date column.2. Debit. There is no special amount column with the title of the accountdebited, Accounts Receivable—Kids Time, in its heading. Therefore, thedebit amount, 200.00, is recorded in the General Debit column. Inorder to indicate what account is to be debited for this amount, writethe title of the account, Accounts Receivable—Kids Time, in theAccount Title column.3. Credit. The journal has a special amount column forcredits to Sales. Write the credit amount, 200.00, inthe Sales Credit column. The title of the account is in thecolumn heading. Therefore, the account title does not need tobe written in the Account Title column.4. Source document. Write the source document number, S1,in the Doc. No. column.TEPSFYIAccounting is not just for accountants. Forexample, a performing artist earns revenuefrom providing a service. Financialdecisions must be made such as the cost ofdoing a performance, the percentage ofrevenue paid to a manager, travel expenses, and the cost of rehearsal space.CHAPTER 4 Journalizing Transactions77

PAID CASH FOR AN EXPENSE2DebitJOURNAL1DATE12 Rent Expense12 Utilities Expense9101DEBITC4C5CREDITSALESCREDITSource DocumentAugust 12. Paid cash for rent, 250.00.Check No. 4.Rent Expense250.00Cash250.00The source document for this transaction isCheck No. 4. (CONCEPT: Objective Evidence) The5CASHDEBITCREDIT2 5 0 004 5 003TEPSanalysis of this transaction is shown in theT accounts.The expense account, Rent Expense, isincreased by a debit, 250.00. The asset account,Cash, is decreased by a credit, 250.00.The reason that Rent Expense is increased bya debit is discussed in the previous chapter. Theowner’s capital account has a normal credit balance. Decreases in the owner’s capital accountare shown as debits.Because expenses decrease owner’s equity,increases in expenses are recorded as debits. Anexpense account, therefore, has a normal debitbalance.Journalizing cash paid for an expense1. Date. Write the date, 12, in the Date column.2. Debit. There is no special amount column with the title of the accountdebited, Rent Expense, in its heading. Therefore, the debit amount, 250.00, is recorded in the General Debit column. In order to indicatewhat account is to be debited for this amount, write the title of theaccount, Rent Expense, in the Account Title column.3. Credit. The journal has a special amount column for credits to Cash.Write the credit amount, 250.00, in the Cash Credit column. The title ofthe account is in the column heading. Therefore, the account title does notneed to be written in the Account Title column.4. Source document. Write the source document number, C4, in theDoc. No. column.Whenever cash is paid for an expense, the journal entry is similar to theentry discussed above. Therefore, the journal entry to record paying cashfor utilities is also illustrated.78CHAPTER 4Journalizing Transactions910CreditF YS142 5 0 004 5 004Date3GENERALDOC. POST.NO.REF.ACCOUNT TITLEPAGE2ISource documentscan be criticallyimportant in tracking down errors.Businesses file theirsource documents sothey can be referredto

A sales invoice is also referred to as a sales ticket or a sales slip. A sales invoice is prepared in duplicate. The original copy is given to the customer. The copy is used as the source document for the sale on account transaction.(CONCEPT: Objective Evidence) Sales invoices are numbered in sequence. sales invoice

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