The general journal is part of the accounting record keeping system. When an event occurs that must be recorded, it is called a transaction, and may be recorded in a specialty journal or in the general journal. There are four specialty journals, which are so named because you record specific types of routine transactions in them. These journals are: Sales journal, Cash receipts journal, Purchases journal and Cash disbursements journal.
Examples of transactions recorded in the general journal are: Asset sales, Depreciation, Interest income and expense and Stock sales. Once entered, the general journal provides a chronological record of all non-specialized entries that would otherwise have been recorded in one of the specialty journals.
A general ledger contains all the accounts for recording transactions relating to a companys assets, liabilities, owners' equity, revenue, and expenses. The general ledger is the backbone of any accounting system which holds financial and non-financial data for an organization. The collection of all accounts is known as ledger account. This may be a large book.
Chart of accounts
A chart of accounts (COA) is a created list of the accounts used by an organization to define each class of items for which money or the equivalent is spent or received. It is used to organize the finances of the entity and to segregate expenditures, revenue, assets and liabilities in order to give interested parties a better understanding of the financial health of the entity.
Describe the act of posting a transaction from the general journal to the ledger and what difficulties could arise if no cross-indexing existed between the general journal and the ledger accounts.
While the journal is referred to as Books of Original Entry, the ledger is known as Books of Final Entry. Using the journal entries, go to the ledger and find the accounts. Post the amounts debited and credited to the appropriate side. Debits go to the left and credits to the right.
Prepare correctly all of the journal entries for the transactions. Be sure to identify which part of the entry is the debit and which is the credit.
Cash was received for services performed for customers, $1,200.
Services were performed for customers on account, $4,200.
Purchased machinery for cash, $30,000.
Capital stock was issued for $100,000.
Salaries for a period were paid to employees, $24,000.
Purchased a truck using a note payable, $35,000.
Services performed on account$4,200
Capital stock $100,000
Describe the purpose of an unadjusted trial balance and the types of accounts that appear on this trial balance.
A trial balance is a list of the balances of ledger accounts of a business at a specific point of time usually at the end of a period such as month, quarter or year. An unadjusted trial balance is the one which is created before any adjustments are made in the ledger accounts. It is usually displayed in three columns, one column that shows accounts and the others that show debit and credit. The totals of the debit and credit column should tally in order to show the trial balance does not have certain errors.
Accounts are usually listed in order of their account number. The accounts are displayed in balance sheet order, starting with the assets, liabilities and equity accounts and ending with income and expense accounts.
Describe some possible causes of this difference.
The possible cause of this difference is that the entries in the unadjusted trial balance have not been changed. The entries are usually as they appeared in the general journal unlike in the adjusted trial balance where entries have gone through adjustment to have a final trial balance with adjustments.
Describe the nature of debits; credits, and a trial balance in a scenario setting plus explain how the trial balance can assist with error location.
A student remembered that the side toward the window in the classroom was the debit side of an account. The student took an examination in a room where the windows were on the other side of the room and became confused and consistently reversed debits and credits. Would the student's trial balance have equal debit and credit totals? If there were no existing balances in any of the accounts to begin with, would the error prevent the student from preparing correct financial statements? Why?
The totals of both the debit and credit will be equal. The errors made will have no effect on the total but the financial statements will be affected. This is because some of the accounts which were supposed to be credited will be debited and vis-a-vis. Therefore a financial statement on the companys credit will be thus having wrong values and accounts.
Store equipment was purchased for $2,000. Instead of debiting the Store Equipment account, the debit was made to Delivery Equipment. Of what help will the trial balance be in locating this error?
The trial balance will tally and this will not show an error has occurred. This error would give the credit and debit equal totals but will cause the two accounts to have incorrect balances. As a result, the fact that the trial balance has tallied does not imply that the entries have been posted correctly. Therefore, the trial balance will only be of help as it will show which account has been debited and which one has not.
Explain the difference between horizontal and vertical analysis. How each type (horizontal and vertical analysis) is calculated and presented for viewing by company stakeholders?
Though both horizontal and vertical analysis are done by the companies for the purpose of analysis of financial statements, and both are useful in analysis of trends for the financial statements of the company, however they both are different in following ways. Under horizontal analysis an analyst compares the financial statement of the company for two more accounting periods, it can be used on any item in the financial statement company so if company wants to see whether its sales for current year is good or not it will compare the sales for the year 2015 with sales for year 2014 or for previous years. It is a time series analysis in the sense that it shows comparison of financial data for several years against a chosen base year.
Vertical analysis is done to review and analyze the financial statements for a year only and therefore it is also called static analysis. Under this method each entry for assets, liabilities and equities in a balance sheet is represented as a percentage of the total account. So if in asset side of balance sheet cash is $200, building is $400 and machinery is $600 and total of balance sheet is $1000, then cash will be 20 percent of total of balance sheet building will be 40 percent and machinery will be 60 percent.
How this type of analysis used by management.
Understanding horizontal and vertical analysis is essential for managerial accounting, because these types of analyses are useful to internal users of the financial statements (such as company management), as well as to external users. If analysis reveals any unexpected differences in income statement accounts, management and accounting staff at the company should isolate the reasons and take action to fix the problem(s).
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Rubin, P. (1990). Managing business transactions. New York: Free Press.
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