Week 2

Recording transactions
in Journals

LEARNING
OBJECTIVES
1. Identify the nature of, purpose of and evidence
for transactions
2. Describe the accounting cycle used to record,
classify and summarise transactions, including
the of ledger accounts and the general ledger
3. Explain the purpose and format of the general
journal,
4. Record transactions in the general journal

TYPES OF
TRANSACTIONS
External Transactions
Involve an outside party
Exchange of economic resources and/or obligations
Sale of inventory
Purchase of supplies

Internal Transactions
Transformation of economic resources
Use of office supplies

Non-Transactional Events
Not usually recorded, but may be in the future
Receiving an order from a customer

SOURCE DOCUMENTS
Prepared for every external
transaction
Support entries in accounting
records
Important element in control
system
Common source documents
include:
Tax invoice (specific requirements as per
ATO)

THE ACCOUNTING
CYCLE
Steps in the
Cycle

1. Recognise &
record
transactions

Accounting
Records
Source documents

Start of
new
period

2.Prepare
financial
statements

Financial
statements

DOUBLE-ENTRY
ACCOUNTING
Each transaction must be analysed
to determine:
What type of accounts are affected
Assets; Liabilities; Equity; Income; Expense

By how much each item must be increased

or decreased

The accounting equation must

always remain in balance

NORMAL ACCOUNT
BALANCES
Increases

Normal
Recorded On

Account
Balance
Assets
Debit side
Debit
Liabilities
Credit side
Credit
Equity
Investment in entity
Credit side
Credit
Drawings from entity Debit side
Debit
Income: Revenues
Credit side
Credit
Expenses
Debit side
Debit

Recap on the Debit

and Credit rules
All assets accounts = All liability accounts +
All equity accounts
DrCredit
Cr to Debit Dr
Cr to Debit toDr
CreditCr
to
Debit to
to Credit
increase decrease decreaseincrease decreaseincrease
Normal
Normal
Normal
balance
balance
balance
Expense
Income
accounts
accounts
Drto Credit to DebitDr
to Credit to
Debit
Cr
Cr
decrease decrease
increase
increase
Normal
Normal
balance
balance
8

EXPANDED
ACCOUNTING CYCLE
1. Recognise & record
transactions

Source documents

2. Journalise transaction

General journal

3. Post to ledger accounts

General ledger

4. Prepare trial balance of

GL

Trial balance

5. Prepare financial
statements

Financial
statements

GENERAL JOURNAL
Once analysed a transaction is
recorded first in the general
journal
What is a Journal?
It
It
It
It

is called the book of Original Entry

is a complete record of all transactions
is presented in Chronological order
can be useful for reducing and locating errors

GENERAL JOURNAL
A journal has the following
advantages:
Complete record of all transactions
Presented in chronological order
Useful for locating and reducing errors as
debits and credits shown together

General Journal
What do we need to know?
Has a transaction occurred ? (Check source
documents)
Is the transaction a business transaction ?
What accounts are affected by the
transaction ?
What types of accounts are these ?
What was the effect of this transaction in
terms of the accounting equation ?

The Journalising
Process
Five steps of journalising process
Step 1: Identify the transactions from source documents
Step 2: Specify each account affected by the transaction
and classify by type (asset, liability, or owners equity)
Step 3: Determine whether each account is increased or
decreased by the transaction
Step 4: Apply the debit and credit rules to determine
whether to debit or credit the account to record increase
or decrease
Step 5: Enter the transaction in the journal

Source:Accounting : Horngren/Harrison/Robinson, 3 rd edition

General Journal Entries

Each general journal entry contains the following
information
The date that the business transaction occurred
The debit entry always appears first
Details of the account(s) to be debited
ie. Name, account number and dollar
amount
Details of the account(s) to be credited
ie. Name, account number and dollar
amount
A narration or description of the transaction

1 May 2012 Darren Jones

deposits
$35 000 in a business bank
account. He has a lawn mowing
business.
Source documents
Bank deposit slip
Is it a business transaction?
Yes as economic resources have been exchanged
between two parties (Darren and the business)
What accounts are affected?
Asset cash at bank increases (Dr)
Equity account capital increases (Cr)
General Journal
Date

Particulars

Post
Ref

Debit

1/5/1
2

Cash at Bank

110

35000

Capital

310

Darren sets up

Credit

35000
15

2nd May 2012 Darren purchases a

vehicle and gardening equipment
for
cash
Source documents

Bank withdrawal slip or Cheque butts or Paid tax invoice

Is it a business transaction?
Yes as economic resources have been exchanged between
two parties (the business and the suppliers)
What accounts are affected?
Asset cash at bank decreases (Cr)
Asset accounts motor vehicle and equipment increases
(Dr)
General Journal
Date

Particulars

Post
Ref

2/5

Motor Vehicle

130

21,000

140

9,000

Equipment
Cash at Bank

Debit

110

Purchase of van and equipment for cash

Credit

30,000

Debits
entered
before
16
Credits

Recording
Transactions in
General Journal

We will not use GST for this

example.
1. 1/1/12 Stuart Lang starts a
cleaning business by placing
$200,000 in a business bank
account
2. 2/1/12 Stuart Lang Buys a Van for
$50,000 paying cash
3. 4/1/12 Stuart Lang withdraws
$3,000 from the business.

17

General Journal
entries
Dat
e

Account

Pos
t

Debit

1
Jan

Cash at Bank

110

200,000

S.Lang Capital

310

Credit

200,000

Commenced business
2
Jan

Van
Cash at Bank

150

50,000

110

50,000

Purchased a van for cash

4
Jan

S. Lang Drawings
Cash at Bank
Owner withdrew cash

315
110

3,000
3,000
18

Use the five step journalising

process to record journal entries in
Problem 3.4, p 119 from your text
Step 1: IDENTIFY the transaction
Step 2: Specify accounts and classify by types
Step 3: Determine increase or decrease in each
account
Step 4: Determine whether to Dr. or Cr. the account
to record increase or decrease
Step 5: Enter transaction in the JOURNAL with brief
explanation

Five step journalising process to record

journal entries
The Arid Sands Golf Club was opened for business on 1 July by Todd Simpson. The following selected events and transactions
occurred during the first month of operations:

July

The owner invested $2 500000 cash into the business.

Acquired the business of Jeffreys Golf World for $1 800 000

cash. The
price consisted of land $1 000 000, building $650000, and
equipment

$150 000.

10

Advertised the opening of the golf course, paying advertising

expenses of $36 000 for a major television campaign.

18

Paid cash $36 000 for a 1-year insurance policy.

19

Purchased new golfing equipment for $60 000 from Rory Golfing,
payable in 30 days.
Received golf membership fees of $22000 in cash.