Chapter 6

The Journal and Source Documents

The Journal

The Journal is the book where all transactions are first entered

The Journal is arrange in date order and contains the information arranged by transaction compared to the ledger where it is arranged by account

This allows you to find all the details about one transaction easily

Steps for Journalizing1. Record the Date

You only need to record the year or date if it is a new year or date or if it is the start of a new page

2. Enter the names of the accounts to be debited and enter the amounts in the debit column

3. Enter the names of the accounts to be credited (indent these accounts) and enter the amounts in the credit column

4. Write a short explanation of the transaction

Leave a blank line between transactions

Sample

Source Documents

Source documents are the business papers that provide information on the nature of the transaction and other details

These source documents are then filed and retained

Cash Sales Slip

Used when goods or services are sold to a customer for cash

Journal EntryBank $40

Sales $40

Cash Sale

Sales Invoice

Used when goods or services are sold on account

Journal EntryA/R? $500

Sales $500

Sale on account

Point of Sale Summary

Used to record a number of sales at a cash register

Journal EntryBank $350

Sales $350

Point of Sale Summary

Purchase Invoice

Used to record a purchase made on account

Can be used to purchase an expense or an asset

Journal EntryAdvertising Expense $500

A/P? $500Purchased ad in local paper

Cheque Copies

Used to record a cash payment Usually to pay an A/P Must be a copy since the original goes to

the supplier Journal Entry

A/P? $600

Bank $600

Paid A/P

Cash Receipts

Used to record the receipt of cash sometimes from more than one customer

Journal EntryBank $400

A/R? $300

A/R? $100

Received cash on account

Bank Advices or Memos

Used by your bank to inform you of changes to your account

A debit advice means you credit Bank A credit advice means you debit Bank Journal Entry (Debit Advice)

Bank Charges Expense $15

Bank $15

Bank Charges

Federal and Provincial Sales Taxes

Provincial Sales Tax – PST Federal Sales Tax – GST (Goods &

Services Tax) There are some differences when

accounting for these taxes

Provincial and Federal Tax Rates (2006)PST BC – 7% AB – 0% SK – 7% MB – 7% ON – 8% QC – 7.5% PE – 10% YK, NT, NU – 0%

HST (Harmonized Sales Tax)(combined PST and GST)

NB – 14% NS – 14% NL – 14%

GST (Goods & Services Tax) 6% as of July 1 2006

Provincial Sales Tax

A percentage tax on goods sold to a customer

Collected by the retailer Varies from province to province

Accounting by the Purchaser

The purchaser makes no special accounting entry for PST

The PST is included in the cost of the item

Accounting by the Vendor (Seller)

The vender calculates the tax and adds it to the price of the items

Collects the tax from the customer Accumulates the sales tax charged in a

liability called PST Payable Remits the tax to the government

periodically

Journal Entries by the Vendor

Bank $107Sales $100PST Payable $7

Cash sale

A/R? $214Sales $200PST Payable $14

Sale on Account

Remitting the Tax

If the PST Payable is $21 credit Journal Entry

PST Payable $21Bank $21

Remitted Sales Tax Note that sometimes the vendor must pay

the government before they receive the cash from the customer

Goods and Services Tax

The GST is charged on both goods and services unlike the PST which is usually just charged on goods

The GST replaced a manufacturers tax and was recently reduced to 6%

GST is only paid by the end customer

GST Accounting by the Customer

Unlike PST the business customer also accounts for the GST

The GST paid by a business customer is recorded in an account called GST Recoverable and is used to reduce the GST paid by the business

Journal Entry by Customer

Office Supplies $100

GST Recoverable $6

Bank $106

Purchased Office Supplies for Cash

GST Accounting by the Vendor

The Vendor calculates the tax and adds it to the price

Collects the tax from the customer Accumulates the tax in an account called GST

Payable Remits the tax to the Government periodically

(after reducing it by the GST Recoverable)

Journal Entry Vendor

Bank $318

Sales $300

GST Payable $18

Cash sale

Remitting the GST

If the GST Payable is a $18 credit and the GST Recoverable is $6 debit the business only pays the government $12

Journal EntryGST Payable $18

GST Recoverable $6Bank $12

Remitting the GST

GST on the Balance Sheet

If shows up on the Balance Sheet in the Liabilities but note that the GST Recoverable is a debit and reduces the GST Payable

Accounts Payable $400

GST Payable $18

Less GST Recoverable $6 $12

Bank Loan $1000