Chapter 3 Accounting Principles: Journal Entries, Source Documents, and Corrections

Journal

Information in a journal includes the debit and credit parts of each transaction recorded in one place.

Objective Evidence accounting concept

Requires that there be proof that a transaction did occur.

Source documents

Examples include checks, sales invoices, receipts, and memorandums.

Memorandum

The source document used when items are paid in cash.

Receipt

The source document for cash received from transactions other than sales.

Calculator tape

The source document for daily cash sales.

Cash and Sales accounts

The accounts affected when cash is received from the owner as an investment.

Cash account

Debited when cash is paid for supplies.

Prepaid Insurance

The asset account that increases when cash is used to pay for insurance.

Sales invoice

Abbreviated as S in a journal entry.

Asset account and liability account

Affected when services are sold on account.

Equipment Rental Expense and Cash

The accounts affected when paying cash for equipment rental.

Asset accounts

One increases and another decreases when cash is received on account.

Capital Account and Cash

The accounts affected when paying cash to the owner for a withdrawal of equity.

Journal page practice

If there is only one blank line remaining on a journal page, it is standard practice to split the entry and record the second line of the entry on the next page.

Error correction in a journal

To correct an error, simply erase the incorrect item and write the correct item in the same place.

Error detection in a journal entry

If an error is detected after several additional journal entries, it should be corrected by drawing a line through the incorrect parts and writing the correct parts on the same line above the error.

Double-entry accounting

A system of accounting where every entry to an account requires a corresponding and opposite entry to a different account.

Journalizing

The process of recording transactions in a journal.

Entry

A record of a transaction in the journal.