BUS 241 Video 5 Analyzing, Journalizing, & Posting

Introduction to Journalizing Transactions

• Journalizing is the first step in the accounting cycle.

• Involves analyzing and journalizing business transactions and posting them to the ledger.

• The process will be elaborated with examples.

Example Transactions

Transaction 1: Bank Deposit (November 1)

• Details: Chris Clark deposited $25,000 into NetSolutions.

• Effect on Cash:

  • Cash account increases by $25,000.

  • Cash is an asset with a normal debit balance.

• Journal Entry:

  • Debit Cash: $25,000

  • Credit Chris Clark's Capital: $25,000

Transaction 2: Purchase of Land (November 5)

• Details: NetSolutions paid $20,000 for land.

• Effect on Cash:

  • Cash decreases by $20,000.

  • To show this:

    • Credit Cash: $20,000

• Journal Entry:

  • Debit Land: $20,000

  • Credit Cash: $20,000

Transaction 3: Purchase Supplies on Account (November 10)

• Details: Supplies purchased for $1,350 on credit.

• Effect on Cash:

  • No immediate cash effect; liability incurred instead.

• Journal Entry:

  • Debit Supplies: $1,350

  • Credit Accounts Payable: $1,350

Transaction 4: Cash Received from Customers (November 18)

• Details: Received $7,500 cash for services.

• Effect on Cash:

  • Cash increases; debit cash account.

• Journal Entry:

  • Debit Cash: $7,500

  • Credit Fees Earned: $7,500

Transaction 5: Incurring Expenses (November 30)

• Details: Total expenses of $3,650 incurred (wages, rent, utilities, and miscellaneous).

• Journal Entry:

  • Debit Wages Expense: $2,125

  • Debit Rent Expense: $800

  • Debit Utilities Expense: $450

  • Debit Miscellaneous Expense: $275

  • Credit Cash: $3,650

Transaction 6: Payment to Creditors (November 30)

• Details: Paid $950 to creditors.

• Effect on Cash:

  • Cash decreases; debit cash and credit accounts payable.

• Journal Entry:

  • Credit Cash: $950

  • Debit Accounts Payable: $950

Transaction 7: Withdrawal by Owner (November 30)

• Details: Chris Clark withdrew $2,000 for personal use.

• Effect on Cash:

  • Cash decreases; account credited.

• Journal Entry:

  • Credit Cash: $2,000

  • Debit Chris Clark Drawing: $2,000

Practice Example

Journalize the Entry for Truck Purchase

• Details: Truck purchased for $42,500, paying $8,500 in cash.

• Journal Entry:

  • Debit Truck: $42,500

  • Credit Cash: $8,500

  • Credit Accounts Payable (or notes payable): $34,000

Further Transactions (December Entries)

Rent Payment (December 1)

• Effect: Rent of $800 affects cash and is an expense.

• Journal Entry:

  • Debit Rent Expense: $800

  • Credit Cash: $800

Unearned Revenue (December 1)

• Details: Received $360 rent in advance for land rental.

• Journal Entry:

  • Debit Cash: $360

  • Credit Unearned Rent: $360

Equipment Purchase (December 4)

• Effect: Purchased equipment for $1,800 on account.

• Journal Entry:

  • Debit Office Equipment: $1,800

  • Credit Accounts Payable: $1,800

Advertisement Expense (December 6)

• Effect: Paid $180 for advertising.

• Journal Entry:

  • Debit Miscellaneous Expense: $180

  • Credit Cash: $180

Payment to Creditors (December 11)

• Effect: Paid $400 to creditors.

• Journal Entry:

  • Debit Accounts Payable: $400

  • Credit Cash: $400

Wages Payment (December 13)

• Details: Paid $950 for wages.

• Effect: Affects cash; decreases net income.

• Journal Entry:

  • Debit Wages Expense: $950

  • Credit Cash: $950

Fees Earned (December 16)

• Effect: Received $3,100 in fees; increases net income.

• Journal Entry:

  • Debit Cash: $3,100

  • Credit Fees Earned: $3,100

Payment of Debt (December 20)

• Details: Paid $900 toward accounts payable.

• Journal Entry:

  • Debit Accounts Payable: $900

  • Credit Cash: $900

Received Payment on Account (December 23)

• Effect: Received cash of $650 against previously credited accounts receivable.

• Journal Entry:

  • Debit Cash: $650

  • Credit Accounts Receivable: $650

Supply Purchase (December 23)

• Effect: Bought supplies for $14.50.

• Journal Entry:

  • Debit Supplies: $14.50

  • Credit Cash: $14.50

Utility Bill Payment (December 31)

• Effect: Paid $310 for utilities.

• Journal Entry:

  • Debit Utilities Expense: $310

  • Credit Cash: $310

Withdrawal by Chris Clark (December 31)

• Effect: Cash decreases by $2.

• Journal Entry:

  • Credit Cash: $2

  • Debit Chris Clark Drawing: $2

Posting to the Ledger

• Journal Entries need to be posted to the ledger.

• Definitions:

  • Journalizing: Recording transactions in the journal.

  • Posting: Transferring journal entries to the general ledger.

• General Ledger: A listing of all accounts used by the company.

Example of Posting

• For each transaction, the amounts must be transferred to the respective account in the ledger.

• Include date, debit/credit categorization to maintain balance.

Trial Balance

• A trial balance summarizes all ledger accounts to ensure that total debits equal total credits.

• Importance: Allows for verification of accounting entries, identifying errors like transposition mistakes.

Common Errors

• Transposition Error: Incorrect number placement causing imbalance.

Conclusion

• The journalizing and posting process is crucial in understanding accounting foundations. Feel free to ask questions for further clarification.