Accountancy journal questions

a journal amount column headed with an account title and accounting recording transactions example
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Published Date:26-07-2017
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CHAPTER 2 THE RECORDING PROCESS www.ThesisScientist.comTHE ACCOUNT  An account is an individual accounting record of increases and decreases in a specific asset, liability, or owner’s equity item.  A company will have separate accounts for such items as cash, salaries expense, accounts payable, and so on. www.ThesisScientist.comDEBITS AND CREDITS  The terms debit and credit mean left and right, respectively.  The act of entering an amount on the left side of an account is called debiting the account and making an entry on the right side is crediting the account.  When the debit amounts exceed the credits, an account has a debit balance; when the reverse is true, the account has a credit balance. DR CR www.ThesisScientist.comILLUSTRATION 2-1 BASIC FORM OF ACCOUNT  In its simplest form, an account consists of 1. the title of the account, 2. a left or debit side, and 3. a right or credit side.  The alignment of these parts resembles the letter T, and therefore the account form is called a T account. Title of Account Left or debit side Right or credit side Debit balance Credit balance www.ThesisScientist.comILLUSTRATION 2-2 TABULAR SUMMARY COMPARED TO ACCOUNT FORM Account Form Tabular Summary Cash Cash Debit Credit 15,000 - 7,000 15,000 7,000 1,200 1,200 600 1,500 1,500 900 - 600 600 200 - 900 250 - 200 1,300 - 250 600 Balance 8,050 - 1,300 8,050 www.ThesisScientist.comDEBITING AN ACCOUNT Cash 15,000 Example: The owner makes an initial investment of 15,000 to start the business. Cash is debited and the owner’s Capital account is credited. www.ThesisScientist.comCREDITING AN ACCOUNT Cash 7,000 Example: Monthly rent of 7,000 is paid. Cash is credited and Rent Expense is debited. www.ThesisScientist.comDEBITING AND CREDITING AN ACCOUNT Cash 1 5,000 7,000 8,000 Example: Cash is debited for 15,000 and credited for 7,000, leaving a debit balance of 8,000. www.ThesisScientist.comDOUBLE-ENTRY SYSTEM  In a double-entry system, equal debits and credits are made in the accounts for each transaction.  Thus, the total debits will always equal the total credits and the accounting equation will always stay in balance. Assets Liabilities Equity www.ThesisScientist.comNORMAL BALANCE  Every account classification has a normal balance, whether it is a debit or credit. www.ThesisScientist.comILLUSTRATION 2-3 NORMAL BALANCES — ASSETS AND LIABILITIES Assets Increase Decrease Debit Credit Normal Balance Liabilities Decrease Increase Debit Credit Normal Balance www.ThesisScientist.comILLUSTRATION 2-4 NORMAL BALANCE — OWNER’S CAPITAL Owner’s Capital Decrease Increase Debit Credit Normal Balance www.ThesisScientist.comILLUSTRATION 2-5 NORMAL BALANCE — OWNER’S DRAWINGS Owner’s Drawings Increase Decrease Debit Credit Normal Balance www.ThesisScientist.comILLUSTRATION 2-6 NORMAL BALANCES — REVENUES AND EXPENSES Revenues Decrease Increase Debit Credit Normal Balance Expenses Increase Decrease Debit Credit Normal Balance www.ThesisScientist.comILLUSTRATION 2-7 EXPANDED BASIC EQUATION AND DEBIT/CREDIT RULES AND EFFECTS Assets Liabilities Owner’s Equity = + Owner’s Owner’s Assets Liabilities = + - Capital Drawings Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. + - - + - + + - Revenues Expenses + - Dr. Cr. Dr. Cr. - + + - www.ThesisScientist.comILLUSTRATION 2-9 THE RECORDING PROCESS JOURNAL LEDGER JOURNAL 1. Analyse each transaction. 2. Enter transaction in a journal. 3. Transfer journal information to ledger accounts. www.ThesisScientist.comTHE JOURNAL Transactions are initially recorded in chronological order in a journal before being transferred to the accounts. Every company has a general journal which contains 1. spaces for dates, 2. account titles and explanations, 3. references, and 4. two money columns. www.ThesisScientist.comTHE JOURNAL The journal makes several significant contributions to the recording process: 1. It discloses, in one place, the complete effect of a transaction. 2. It provides a chronological record of transactions. 3. It helps to prevent or locate errors because the debit and credit amounts for each entry can be readily compared. www.ThesisScientist.comJOURNALIZING  Entering transaction data in the journal is known as journalizing.  Separate journal entries are made for each transaction.  A complete entry consists of 1. the date of the transaction, 2. the accounts and amounts to be debited and credited, and 3. a brief explanation of the transaction. www.ThesisScientist.comILLUSTRATION 2-10 TECHNIQUE OF JOURNALIZING The date of the transaction is entered in the date column. J1 GENERAL JOURNAL Date Account Titles and Explanation Ref. Debit Credit 2002 Sept. 1 Cash 15,000 M. Doucet, Capital 15,000 Invested cash in business. 1 Equipment 7,000 7,000 Cash Purchased equipment for cash. www.ThesisScientist.com

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