This activity contains 30 questions.

As the Bookkeeper, identify the account to which you will post the following transactions recorded by the Cashier in the Cash account: a) 300 paid to buy a Cash book and a ledger. Accounting books account Purchases account Stationery account b) 15,000 paid to acquire a lorry for business use. Capital account Transport account Motor vehicle account c) 6,000 paid to buy alarm clocks for sale. Furniture account Alarm clocks account Purchases account d) 400 paid for servicing the businesss lorry. Motor vehicle account Vehicle maintenance a/c General expenses a/c e) 10,000 received as capital from Joe Gardiner, the proprietor of the shop. Cash introduced account Capital account Joe Gardiners account 1. The accounting entries for recording 100,000 cash introduced by the owner of a business are: Credit Cash account and Debit Investment in business account Debit Cash account and Credit Investments account Debit Cash account and Credit Capital account Credit Cash account and Debit Owner's account 2. Accounting entries for recording the payment of a telephone bill are: Credit Cash account and Debit Office Equipment account Credit Cash Account and Debit Telephone expenses account Debit Cash account and Credit Telephone expenses account Debit Capital account and Credit Cash account 3. Accounting entries for recording the making of a loan to Jill, one of the managers: Debit Jills Loan account and Credit Cash account Credit Cash account and Debit Salaries account Credit Cash Account and Debit Staff Welfare account Debit Cash account and Credit Jills Loan account 4. Accounting entries for the repayment of a loan received from Richard, the owners friend:

Credit Cash Account and Debit Richards Loan account Credit Cash account and Debit Capital account

Debit Cash account and credit Richards Loan account Debit Cash account and Credit Capital account 5. As the Bookkeeper, to which side of the appropriate ledger account would you post the following transactions already recorded in the Cash Account? a. Payment of rent for business premises DEBIT CREDIT b) Receipt of capital from the proprietor DEBIT CREDIT c) Amounts received on sale of goods DEBIT CREDIT d) Payment for a vehicle DEBIT CREDIT e) Payments for purchasing goods for sale DEBIT CREDIT f) Payment of telephone bills DEBIT CREDIT g) Receipt of an amount as loan DEBIT CREDIT h) Repayment of part of the loan DEBIT CREDIT 6. Which of the following statements is correct? A Trial balance is a list of all entries made in the books of account. A Trial balance is a list of balances in all ledger accounts. A Trial balance is another ledger account. A Trial balance is a list of balances in the cash account and all ledger accounts. 7. Which of the following statements is correct? A Trial balance reveals whether double entry principle has been complied with. A Trial balance reports the financial position of a business. A Trial balance reports the profit or loss made by a business. A Trial balance will always balance. 8. The total of the debit balances listed in a trial balance will not be equal to that of the credit balances... if a transaction has not been entered in the book of prime entry. if an amount paid for purchases is posted to Stationery account. if an amount drawn by the owner is posted to the debit of the Capital account. if an amount entered in the prime entry book is not posted 9. Which of the following errors will a trial balance fail to reveal? Payment of 2,800 for goods to be sold being posted to Stationery account

7,500 received from sales being posted to the Sales account as 5,700 Payment of 240 for stationery being posted as 420 Sales account total being added as 36,400 instead of 39,400 10. Which of the following errors would have caused a difference in the trial balance? Not recording in the Cash Account 15,000 paid for purchasing goods for sale Posting to Motor vehicles account 600 paid for servicing vehicles Recording a sale of 30,000 as 3,000 in the Cash Book Posting a payment of 21,000 for stationery as 12,000 to the Stationery account 11. A trader, who commenced business in the year, extracted his trial balance on the last day of the first month as shown below. It failed to balance. Which of the following would explain the failure? Salaries, an expense, has been stated in error as a credit balance. A payment has been posted wrongly to the credit side of an account instead of debit. The trial balance fails to include one or more of the account balances. The Trial balance has been added wrongly. 12. Assuming that each of the errors stated below is the only accounting error, identify the amount by which the Trial Balance will fail to balance. a) 360 received on sales was not posted. Excess debit of 360 Excess credit of 360 Excess debit of 720 b) 1,800 paid for purchases was posted as 180. Excess credit of 1,620 Excess credit of 1,800 Trial balance will balance c) 145 paid for servicing the vehicle was posted to the Motor Vehicles account. Excess credit of 145 Excess debit of 145 Trial Balance will balance d) 500 paid as a loan to John, a salesman, has been posted to the credit of John's account. Excess debit of 1,000 Excess credit of 1,000 Excess credit of 500 e) 160 received on sales was not recorded at all by the Cashier. Excess debit of 160 Excess credit of 160 Trial balance will balance f) 260 paid for stationery was posted to the Stationery Account as 620. Excess debit of 360 Excess debit of 260 Excess credit of 360 g) The debit side of the Cash account was overcast by 200 (Casting means adding). Excess credit of 200 Trial balance will balance Excess debit of 200

Journal Entries
Analyzing transactions and recording them as journal entries is the first step in the accounting cycle. It begins at the start of the accounting period and continues during the whole period. Transaction analysis is the process of determining whether a particular business event will effect the assets, liabilities or equity of the business and the magnitude of its effect (i.e. its currency value). When analyzing transactions, accountants also classify them appropriately and record them according to the debit-credit rules. Business transactions are those events which cause change in the value of its assets, liabilities or equities. The following example illustrates how to record journal entries:

Example
Company A was incorporated on January 1, 2010 with an initial capital of 5,000 shares of $20 par value common stock. During the first month of its operations, the company engaged in following transactions: Date Jan 2 Jan 3 Jan 4 Jan 13 Jan 13 Jan 14 Jan 18 Jan 23 Jan 25 Jan 26 Jan 28 Jan 31 Jan 31 Jan 31 Jan 31 Transaction An amount of $36,000 was paid as advance rent for three months. Paid $60,000 cash on the purchase of equipment costing $80,000. The remaining amount was recognized as a one year note payable with interest rate of 9%. Purchased office supplies costing $17,600 on account. Provided services to its customers and received $28,500 in cash. Paid the accounts payable on the office supplies purchased on January 4. Paid wages to its employees for first two weeks of January, aggregating $19,100. Provided $54,100 worth of services to its customers. They paid $32,900 and promised to pay the remaining amount. Received $15,300 from customers for the services provided on January 18. Received $4,000 as an advance payment from customers. Purchased office supplies costing $5,200 on account. Paid wages to its employees for the third and fourth week of January: $19,100. Paid $5,000 as dividends. Received electricity bill of $2,470. Received telephone bill of $1,494. Miscellaneous expenses paid during the month totaled $3,470

The following table shows the journal entries for the above events. Date Jan 1 Account Cash Common Stock Debit 100,000 100,000 Credit

Jan 2 Jan 3

Prepaid Rent Cash Equipment Cash Notes Payable

36,000 36,000 80,000 60,000 20,000 17,600 17,600 28,500 28,500 17,600 17,600 19,100 19,100 32,900 21,200 54,100 15,300 15,300 4,000 4,000 5,200 5,200 19,100 19,100 5,000 5,000 2,470 2,470 1,494 1,494 3,470 3,470

Jan 4 Jan 13 Jan 13 Jan 14 Jan 18

Office Supplies Accounts Payable Cash Service Revenue Accounts Payable Cash Wages Expense Cash Cash Accounts Receivable Service Revenue

Jan 23 Jan 25 Jan 26 Jan 28 Jan 31 Jan 31 Jan 31 Jan 31

Cash Accounts Receivable Cash Unearned Revenue Office Supplies Accounts Payable Wages Expense Cash Dividends Cash Electricity Expense Utilities Payable Telephone Expense Utilities Payable Miscellaneous Expense Cash

At the end of the period, all the journal entries for the period are posted to the ledger accounts.

Tracking business activity with T accounts would be cumbersome because most businesses have a large number of transactions each day. These transactions are initially recorded on source documents, such as invoices or checks. The first step in the accounting process is to analyze each transaction and identify what effect it has on the accounts. After making this determination, an accountant enters the transactions in chronological order into a journal, a process called journalizing the transactions. Although many companies use specialized journals for certain transactions, all

businesses use a general journal. In this book, the terms general journal and journal are used interchangeably. The journal's page number appears near the upper right corner. In the example below, GJ1 stands for page 1 of the general journal. Many general journals have five columns: Date, Account Title and Description, Posting Reference, Debit, and Credit.

To record a journal entry, begin by entering the date of the transaction in the journal's date column. For convenience, include the year and month only at the top of each page and next to each month's first entry. In the next column, list each account affected by the transaction on a separate line, and enter a short description of the transaction immediately below the list of accounts. The accounts being debited always appear above the accounts being credited, which are indented slightly. The posting reference column remains blank until the journal entry is transferred to the accounts, a process called posting, at which time the account's number is placed in this column. Finally, enter the debit or credit amount for each account in the appropriate columns on the right side of the journal. Generally, one blank line separates each transaction.

The Recording Process Illustrated

To understand how to record a variety of transactions, consider the description and analysis of the Greener Landscape Group's first thirteen transactions. Then see how each transaction appears in the company's general journal and general ledger accounts. Transaction 1: On April 1, 20X2, the owner of the Greener Landscape Group, J. Green, invests $15,000 to open the business. Therefore, an asset account (cash) increases and

is debited for $15,000, and the owner's capital account (J. Green, capital) increases and is credited for $15,000.

Notice that the cash account has a debit balance and the J. Green, capital account has a credit balance. Since both balances are normal, brackets are not used. Transaction 2: On April 2, Mr. Green purchases a $15,000 used truck by paying $5,000 in cash and signing a $10,000 note payable, which is due in eighteen months. One asset account (vehicles) increases and is debited for $15,000. Another asset account (cash) decreases and is credited for $5,000. A liability account (notes payable) increases and is credited for $10,000. The shaded areas below provide a reference for the transaction's position in the journal and ledger accounts. They are not part of the current entry.

Transaction 3: On April 3, Mr. Green purchases lawn mowers for $3,000 in cash. One asset account (equipment) increases and is debited for $3,000, and another asset account (cash) decreases and is credited for $3,000.

Transaction 4: On April 5, Mr. Green purchases $30 worth of gasoline to power the mowers during April. Since the gas is a cost of doing business during the present accounting period, an expense account (gas expense) increases and is debited for $30. (Remember: increases in asset, expense, and drawing accounts are made with debit entries.) In addition, an asset account (cash) decreases and is credited for $30.

Transaction 5: On April 5, Mr. Green pays $1,200 for a one-year insurance contract that protects his business from April 1 until March 31 of the following year. Given the length of time this contract is in effect, the matching principle requires that the contract's cost initially be recorded as an asset since it provides a future benefit. Therefore, an asset (prepaid insurance) increases and is debited for $1,200. Another asset account (cash) decreases and is credited for $1,200.

Transaction 6: On April 5, Mr. Green purchases $50 worth of office supplies, placing the purchase on his account with the store rather than paying cash. Supplies are a prepaid expense (an asset) until they are used and thereby become a cost of doing business (an expense). Therefore, an asset account (supplies) increases and is debited for $50. Since Mr. Green places the purchase on his account with the store, a liability account (accounts payable) increases and is credited for $50. Accounts payable differ from notes payable. Accounts payable are amounts the company owes based on the good credit of the company or the owner, whereas notes payable are amounts the company owes under formal obligations.

Transaction 7: On April 14, the Greener Landscape Group cuts grass for seven customers, receiving $50 from each. An asset account (cash) increases and is debited for $350, and a revenue account (lawn cutting revenue) increases and is credited for $350.

Transaction 8: On April 20, Mr. Green receives $270 from a customer for six future maintenance visits. An advance deposit from a customer is an obligation to perform work in the future. It is a liability until the work is performed, at which time it becomes revenue. Therefore, the advance deposit is called unearned revenue. An asset account (cash) increases and is debited for $270, and a liability account (unearned revenue) increases and is credited for $270.

Transaction 9: On April 22, the Greener Landscape Group cuts grass for eight customers, billing each one $50 but receiving no cash. In accordance with the revenue recognition principle, revenue is recognized upon the completion of a service or the delivery of a product, even if no cash changes hands at that time. Therefore, an asset account (accounts receivable) increases and is debited for $400, and a revenue account (lawn cutting revenue) increases and is credited for $400.

Notice the new journal page and the corresponding change in posting references on the accounts. Transaction 10: On April 26, Mr. Green pays $200 in wages to a part-time employee. An expense account (wages expense) increases and is debited for $200, and an asset account (cash) decreases and is credited for $200.

Transaction 11: On April 28, Mr. Green pays $35 to print advertising fliers. An expense account (advertising expense) increases and is debited for $35, and an asset account (cash) decreases and is credited for $35.

Transaction 12: On April 29, Mr. Green withdraws $50 for personal use. The owner's drawing account (J. Green, drawing) increases and is debited for $50, and an asset account (cash) decreases and is credited for $50.

Transaction 13: On April 30, five of the eight previously billed customers each pay $50. Therefore, one asset account (cash) increases and is debited for $250, and another asset account (accounts receivable) decreases and is credited for $250.