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General Journal

UNIT 3 CH 7

QuestionAnswer
general journal accounting record used to record infrequent, non-cash transactions, which cannot be recorded in the special journals
does GJ contain anything to do with cash? NO! they co to CRJ or CPJ
special journals allows similar transactions to be summarised, reducing no. of ledger entries required
main types of transactions in GJ: commencing entries, non-cash transactions with the owner, bad debts, correcting entries, use of stock for adds, closing entries and BDA
notes when are transactions recorded? in order of date that they occur
what is a narration? a brief description of a transaction recorded in the General Journal, including a reference to the relevant source document *generally memo
why is it required in GJ ? General Journal records a wide variety of transactions, it is necessary to give a brief description of the transaction immediately after recording the debit and credit entries. __ and identify source doc
how come other special journals do not require narrations? because not only are all of a similar nature, but also they are described by the title of the journal in which they are recorded.
GJ has no classification columns because it records transactions that are infrequent and also it makes it easier to post to the General Ledger
commencing entry: a General Journal entry to establish double-entry records by entering existing asset, liability and owner’s equity balances in the ledger account *it is infrequent, non cash transaction
purpose of commencing entry? 1.to open/establish ledger accounts for any existing A, L or OE items. ___2__when the business is just starting+owner is contributing starting capital___3__if owner decides to switch from single- entry accounting to double-entry records.
narration for commencing entries: Commencement of double-entry records (Memo 1)
when commencing how to find capital?? A=L+OE
when is GJ posted to GL ? end of month/RP
note about GL? only dates shown in GL should be at the start and the end of the month except for exceptions :P
narration for capital contribution: Owner contributed vehicle for business use – agreed value (Memo 16)
drawings of stock must be recorded in GJ non cash transaction
narration for stock drawing: Owner withdrew stock for personal use (Memo 13)
bad debt: an expense incurred when a debt is written off because it is deemed to be irrecoverable
what acc principle and QC should bad debts be recognised? conservatism and relevance
bad debts why conservatism? bad debts should be recognised as an expense when the loss is probable, so that assets (in this case, Debtors Control) are not overstated.
bad debts why relevance? Recognising a bad debt will ensure the reports contain all the information that is useful for decision-making – such as bad debts in the Income Statement and an updated amount for Debtors Control in the Balance Sheet. This ensures Relevance.
narration for bad debt: Debt written off as irrecoverable (Memo 41)
bad debts effect on acc eq. A-decr (debtors control L - no effect and O.E - Decr (bad debts exp increases)
narration of examples of correcting entries: Correcting entry – wages recorded as electricity (Memo 20)____Correcting entry – drawings recorded as advertising (Memo 21)
Explain why in some situations errors may be corrected in the appropriate special journal, but in others a General Journal entry is required. When errors are detected before the journals are posted to the ledger, they can be corrected in the special journals____ if the journals have already been posted to the ledger, errors must be corrected using a General Journal entry.
three types of errors that may need to be corrected via the General Journal. recording a transaction in the wrong ledger account____ omitting a transaction____ recording an incorrect amount
two basic steps for correcting an error involving the use of the wrong ledger account. Undo the incorrect entry by reversing it; that is, record a debit entry to undo an incorrect credit, and vice versa._____ Enter the correct entry.
Explain why the vehicle contributed by the owner was valued at its agreed vale. Although owner and the business are assumed to be separate entities, there is no ‘sale’ document (and no cash exchanged) when the asset is contributed. Therefore, the agreed value ($13 000) must be used as the Historical Cost in the business’ records.
Wendy bought a computer at $2000 but current value is $1100 she argues that it should be valued at $2000. according to one QC why must it be valued at $1100 Relevance ___ The new value of $1 100 is more useful for decision-making as it is the agreed value at the time the computer is contributed to the business.
Referring to two accounting principles, discuss Wendy’s argument about the valuation of the computer: HC demands that transactions are recorded and A valued at orginal purchase price $2000. Owner paid this price but according to Entity principle, business/owner are separate. must use agreed value of $1100 at the time it is contributed as its HC
Referring to one qualitative characteristic, explain why bad debts must be reported in the Income Statement. Relevance To ensure the owner has all the information that may be useful for decision-making about the firm’s profit, bad debts must be included in the Income Statement as an expense.
Created by: 96.0