LECTURE 11 CXC PRINCIPLES OF ACCOUNTS THE GENERAL JOURNAL 11.0 The Generai Journal (The Journal) This is the book of original entry for recording transaction not been entered into the other books of original entry In other words, it is used to record non cash and non goods related transactions, or unusual one time transactions outside the ordinary operating activities of the business Examples of transaction or entries made in the Journal are: Opening entries, that is cntries made to open up the Assets, Iiabilities and Capital at the beginning of the accounting cycle or accounting period The purchase and sale of fixed assets on credit The return of Fixed Assets to suppliers Debt and other accounts settlements The writing off of bad debts and the creation of Provision for bad debts The creation of Provision for Depreciation Adjusting for Accruals and Prepayments "Other Accounting adjustments such as correcting errors Closing entries, that is, entries made to close oft the account (Income and Expenses) at the end of the accounting period . . o *Will be covered in subsequent lectures The Journal as the name says is a record of the transaction in the form of a Journal or diary which identifies the accounts to be debited and credited, and a summary description of the transaction (narrative) After the transaction is rccorded in the Journal, it is then posted to its respcctive accounts in the Ledgers The Journal looks like this The Journal Dctails Date Folio Debit (S) Credit (S) I Name of account to be Debited Xx Xxx Name of account to be credited Narrative XxxX Example of recording transactions in the Journal I. Opening entries On January 1 2009, the business had the following Assets and Liabilities: 11.1 Assets Motor Van Equipments Furniture Stock Debtors 30 000 24 000 15 900 8 000 Liabilities Long Term Loan40 000 Short Term Loan 6000 Creditors B Grant T Young 10 100 9 800 C Defray Bank Cash 6 400 7 500 2 100 2. Fixed Assets bought and sold on credit Jan 9 Bought Equipments on credit from Courts Grenada $12 000 Jan 18 Sold Furniture on credit to H Happy S3 200 3. Adjustment for Asset received in settlement of outstanding debt Jan 22 Reccived two Computers valued at $2 100 cach plus $2 200 cash from C Defray in full scttlement of his debt of S6 400 4. Closing entries Closing entries are entries made to close off the ledger account at the end of the accounting period Mainly the Income or revenue and Expenses accounts are the ones closed off Accounts The following revenue and expenses accounts (and cost of sales accounts) have to be closed off and transferred to the Trading, Profit and Loss Account or Income Statement as at 31 December 2008. Account Title Sales Purchases Commission Received Salaries Amount (5) Balance 250 000 Cr 98 500D 10100 Cr 51 000 Dr Cost of sales will be transferred to the Trading Account. Additional Revenues and Expenses will be transferred to the Profit and Loss Account In essence, it is items of Revenue and Expenses which are closed off and transferred to the Trading, Profit and Loss account (Income Statement) . Costs" includes all costs incurred to get the iventory to its present location and saleable conditions It includes purchase price port duties, and other direct cost associated with the inventory bough Net Realizable Value" is the arm's length selling value for value which can be reahzed when sold) less any cost or expenses to sell the inventory Calculate the value of the stock item for the following items of stock NRV Stock Value StockCostsSelling price Expense to sell (S) type 1 400 4 500 2 500 6 600 8 100 3 000 5 700 3 600 6 600 9 900 300 0 500 600 2 000 A-11 A-44 B-13 C -23 D-19 Methods of Stock Valuation To determine the Inventory amount/quantity and its value, an Inventory or stock count (stock taking) is done. This can be done at the year end or on a continuous basis. A manual count is made even if there is a perpetual or computerized system that monitors and checks the quantity and inventory types in the business .3 Your syllabus identifies the following methods of stock Valuation l First In First Out or FIFO method - where inventory is issued and valued on the first set in first set out basis 2. Last In First Out or LIFO mcthod- where inventory is issued and valued on the last sect in first set out basis 3. Average Cost (AVCO) method- where inventory is valued on the average cost of the inventory 4. Standard Cost- a standard cost is used for valuing the items of inventory (to be done later) Example of Stock Valuation The following was obtained for an item of inventory in Guess Stores for the month of March 1.4 2009 March I Balance b/f 120 packets as12 each March 4Purchased 500 packets @S10 cach March 8h Purchased 800 packets aS8 each March 12 Sold 600 packets a $20 each March 18th Purchased 1 000 packets $7 cach March 25 Sold 600 packets aS20 each March 29hSold 850 packets @ $15 each Rccord the information in the Stock valuation Ledger and determine the value of stock at the end of the month using the three methods above. Exercise 1: Home assignment - Prepare page 13 of the Journal to record the following. Narratives are required 2 (a) Opening entries - Balances as at January 1't 2009: Assets Land and Building Equipments Motor Vehicles Sales Ledger Bank and Cash Liabilities Long Term Loan Short Term Loan Purchases Ledger 850 000 128 600 101 900 48 200 33 300 40 000 6 000 31 000 Bought Land from Land Use Authority for $36 800 20% was paid immediately by cheque, whereas the remainder will be paid in fou monthly installment commencing the following month (b) Apr 28 2009 May 13 2009 Bought Equipments on credit from Digital technologies $18 500 June 10 2009 Sold a Motor Van on credit to RR Repairs for $6 100. June 28 2009 Returned Office Equipment to RR Repairs $2 500 June 30 2009 An amount of S15 100 is owing to a supplier (P Truth). In a legal settlement, we received S6 800 as Commission owed to us. We have agreed to cancel of the amount against his account Closing entries to be transferred to the Income Statement as at 30 June 20 Account Title Turnover (Sales) Administrative expenses Commission & other Revenucs Selling and Distribution expenses Finance expenses (c) Balance Amount (S) 118 450 110 000 98 600 45 000 Cr Dr Cr Dr 1 50 D LECTURE 11 CXC PRINCIPLES OF ACCOUNTS THE GENERAL JOURNAL 11.0 The Generai Journal (The Journal) This is the book of original entry for recording transaction not been entered into the other books of original entry In other words, it is used to record non cash and non goods related transactions, or unusual one time transactions outside the ordinary operating activities of the business Examples of transaction or entries made in the Journal are: Opening entries, that is cntries made to open up the Assets, Iiabilities and Capital at the beginning of the accounting cycle or accounting period The purchase and sale of fixed assets on credit The return of Fixed Assets to suppliers Debt and other accounts settlements The writing off of bad debts and the creation of Provision for bad debts The creation of Provision for Depreciation Adjusting for Accruals and Prepayments "Other Accounting adjustments such as correcting errors Closing entries, that is, entries made to close oft the account (Income and Expenses) at the end of the accounting period . . o *Will be covered in subsequent lectures The Journal as the name says is a record of the transaction in the form of a Journal or diary which identifies the accounts to be debited and credited, and a summary description of the transaction (narrative) After the transaction is rccorded in the Journal, it is then posted to its respcctive accounts in the Ledgers The Journal looks like this The Journal Dctails Date Folio Debit (S) Credit (S) I Name of account to be Debited Xx Xxx Name of account to be credited Narrative XxxX Example of recording transactions in the Journal I. Opening entries On January 1 2009, the business had the following Assets and Liabilities: 11.1 Assets Motor Van Equipments Furniture Stock Debtors 30 000 24 000 15 900 8 000 Liabilities Long Term Loan40 000 Short Term Loan 6000 Creditors B Grant T Young 10 100 9 800 C Defray Bank Cash 6 400 7 500 2 100 2. Fixed Assets bought and sold on credit Jan 9 Bought Equipments on credit from Courts Grenada $12 000 Jan 18 Sold Furniture on credit to H Happy S3 200 3. Adjustment for Asset received in settlement of outstanding debt Jan 22 Reccived two Computers valued at $2 100 cach plus $2 200 cash from C Defray in full scttlement of his debt of S6 400 4. Closing entries Closing entries are entries made to close off the ledger account at the end of the accounting period Mainly the Income or revenue and Expenses accounts are the ones closed off Accounts The following revenue and expenses accounts (and cost of sales accounts) have to be closed off and transferred to the Trading, Profit and Loss Account or Income Statement as at 31 December 2008. Account Title Sales Purchases Commission Received Salaries Amount (5) Balance 250 000 Cr 98 500D 10100 Cr 51 000 Dr Cost of sales will be transferred to the Trading Account. Additional Revenues and Expenses will be transferred to the Profit and Loss Account In essence, it is items of Revenue and Expenses which are closed off and transferred to the Trading, Profit and Loss account (Income Statement) . Costs" includes all costs incurred to get the iventory to its present location and saleable conditions It includes purchase price port duties, and other direct cost associated with the inventory bough Net Realizable Value" is the arm's length selling value for value which can be reahzed when sold) less any cost or expenses to sell the inventory Calculate the value of the stock item for the following items of stock NRV Stock Value StockCostsSelling price Expense to sell (S) type 1 400 4 500 2 500 6 600 8 100 3 000 5 700 3 600 6 600 9 900 300 0 500 600 2 000 A-11 A-44 B-13 C -23 D-19 Methods of Stock Valuation To determine the Inventory amount/quantity and its value, an Inventory or stock count (stock taking) is done. This can be done at the year end or on a continuous basis. A manual count is made even if there is a perpetual or computerized system that monitors and checks the quantity and inventory types in the business .3 Your syllabus identifies the following methods of stock Valuation l First In First Out or FIFO method - where inventory is issued and valued on the first set in first set out basis 2. Last In First Out or LIFO mcthod- where inventory is issued and valued on the last sect in first set out basis 3. Average Cost (AVCO) method- where inventory is valued on the average cost of the inventory 4. Standard Cost- a standard cost is used for valuing the items of inventory (to be done later) Example of Stock Valuation The following was obtained for an item of inventory in Guess Stores for the month of March 1.4 2009 March I Balance b/f 120 packets as12 each March 4Purchased 500 packets @S10 cach March 8h Purchased 800 packets aS8 each March 12 Sold 600 packets a $20 each March 18th Purchased 1 000 packets $7 cach March 25 Sold 600 packets aS20 each March 29hSold 850 packets @ $15 each Rccord the information in the Stock valuation Ledger and determine the value of stock at the end of the month using the three methods above. Exercise 1: Home assignment - Prepare page 13 of the Journal to record the following. Narratives are required 2 (a) Opening entries - Balances as at January 1't 2009: Assets Land and Building Equipments Motor Vehicles Sales Ledger Bank and Cash Liabilities Long Term Loan Short Term Loan Purchases Ledger 850 000 128 600 101 900 48 200 33 300 40 000 6 000 31 000 Bought Land from Land Use Authority for $36 800 20% was paid immediately by cheque, whereas the remainder will be paid in fou monthly installment commencing the following month (b) Apr 28 2009 May 13 2009 Bought Equipments on credit from Digital technologies $18 500 June 10 2009 Sold a Motor Van on credit to RR Repairs for $6 100. June 28 2009 Returned Office Equipment to RR Repairs $2 500 June 30 2009 An amount of S15 100 is owing to a supplier (P Truth). In a legal settlement, we received S6 800 as Commission owed to us. We have agreed to cancel of the amount against his account Closing entries to be transferred to the Income Statement as at 30 June 20 Account Title Turnover (Sales) Administrative expenses Commission & other Revenucs Selling and Distribution expenses Finance expenses (c) Balance Amount (S) 118 450 110 000 98 600 45 000 Cr Dr Cr Dr 1 50 D