Accounting1 Chapter 6 (The Journal and Source Documents)

Grade 11 Accounting 

Textbook: Accounting 1 (7th edition) By: George Syme, Tim Ireland, Colin Dodds.

6.1- The Two-Column General Journal

• Journalizing is the process of recording accounting entries in the journal 
• All transactions are recorded in the journal prior to being recorded in the ledger accounts 
• Main purpose of the journal is to provide a continuous record of accounting entries in the order in which they occur 
• Transactions are separated by blank lines
• The debit account is recorded before the credit account (credit account is indented) 

The Steps to Record a Journal Entry 

1. Enter the date as well as the year and month 
2. Enter the names of the accounts in the particulars column (debit accounts go first, followed by credit accounts) 
3. Enter the values of the accounts (they should balance) 
4. Write a brief explanation about the transaction after the credit account (in the particular column) make sure to include a source document number 

TO NOTE

• The month and year are not repeated every entry (only once the month or year has changed) 
• The date (eg 21) is repeated for each transaction, no matter how many transactions happen on a given day 
• Enter the journal page number at the top 

The Opening Entry

Every accounting entry is recorded first in the journal as a way to show the starting balances as well as the different accounts. 

6.2- Source Documents

• A source document is a business paper that shows the nature of a transaction and provides all the information needed to account for it properly 
• Source documents show that transactions are valid (proof of transaction) 
• Cheque Almost all transactions have a source document (except for eg if the owner draws money from the business' bank for personal use) 

IMPORTANT FOR

1. For reference 
2. For finding errors 
3. For verifying transactions 

Types of Source Documents

       1. Cash Sales Slip 

• Goods/services are sold to a customer for cash 
• Debit Bank, Credit Fees Earned

       2. Sales Invoice 

• Goods/services are sold on Account 
• Vendor is the seller, purchaser is the buyer 
• Debit A/R, Credit Fees Earned

      3. Point of Sales Summaries 

• At the end of the day a POS is printed which compares the sales activity of credit and debit cards with a bank statement
• A transaction log is also generated (name and card number) 
• Debit Bank, Credit Fees Earned (same as cash sales slip) 

      4. Purchase Invoice

• Represents a purchase of services or goods on account 
• Debit an Asset or Expense, Credit an A/P 

     5. Cheque Copies

• Is a document supporting the accounting entry for a payment by cheque 
• Paying an Asset (Debit A/P, Credit Bank) 
• Cash purchase of an Asset (Debit Asset, Credit Bank) 
• Cash Payment for an expense (Debit Expense, Credit Bank) 
• Owner withdraws for personal use (Debit Drawings, Credit Bank)

    6. Cash Receipts Daily Summary

• Business paper that lists the money coming in from the customers (shows the customer name, dollar amounts, what they're paying for)
• Remittance Advice is a form accompanying the cheque explaining the payment  
• Debit Bank, Credit A/R

    7. Bank Advices 

• When a bank initiates a change in the bank account of a business 
• Bank Debit Advice: Bank document informing the business of a decrease made to the business' bank account 
• Debit Bank Charges, Credit Bank
• Bank Credit Advice: Bank document informing the business of an increase made to the business' bank account
• Debit Bank, Credit Bank Charges 

6.3- Sales Tax

Taxes are a way in which the government raises funds to pay for services. 

Two tax systems are used in Canada 

1. PSG/ GST System 

• PST- Provincial Sales Tax (8% Ontario)
• Services are exempt from PST 
• GST- Goods and Services Tax (5%)
• Allows businesses to get refund from GST they pay when buying assets or expenses

2. HST System 

• Harmonized Sales Tax 
• One tax that combines PST and GST (13% in Ontario) 
• Businesses receive a refund for any HST paid when purchasing assets and expenses

Accounting for Taxes 

Businesses collect tax money on behalf of the government on all sales

• Uses a tax payable account to record this in the ledger/ accounting journal
• Eg; Debit Bank $535, Credit Sales $500, Credit PST Payable $35 (recorded as a liability on the balance sheet)

Remitting Taxes- sending tax money collected on behalf of the government, to the government 

• For all PST, all tax charged in a month is remitted on the 15th day of the following month
• Eg; Debit PST Payable $35, Credit Bank $35

Businesses with sales of taxable goods and services of $30,000 or more must register for a GST/HST number and collect and remit GST/HST

Taxation Principles

• A business keeps track of its purchases on a separate account (HST) so it can deduct it from its HST Tax liability (since businesses get refunds on purchases with HST)
• Tax Dollars are collected by the seller and recorded in a separate liability account 
• Tax Dollars rightfully belong to the government 
• The seller sends the tax dollars to the government at appointed times

Accounting for Provincial Sales Tax

1. The tax is added to the normal price of the goods 
2. The retailer collects the money from the customer on behalf of the government 
3. The collected account from the customer accumulates in a liability account "PST Payable"
4. Remit the accumulated sales tax to the government 

There are two accounts for HST in the ledger 

• HST Payable 
• HST Recoverable

Contra Account: An account that has a balance that reduces the balance of a closely related account

Eg 1; Sold $1,500 of goods on account to S.Wilson. HST amounts to $195

A/R S. Wilson $1,695

       Sales $1,500 

       HST Payable $195

Eg 2; Sammy Services buys $500 of office equipment from Home Depot by cash. HST amounts to $65

Office Equipment $500 

HST Recoverable $65

        Bank $565

Eg 3; By the end of the month Sammy Services has a balance of $2,000 in HST payable and a balance of $600 in HST Recoverable. They must remit their taxes to the government.

HST Payable $2,000

        HST Recoverable $600 

        Bank $1,400