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General Journal
UNIT 3 CH 7
| Question | Answer |
|---|---|
| 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. |
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