40 transactions with their journal entries, ledger , trial balance, to prepare a project
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In the past lessons we learned to post one transaction into two accounts. In this lesson we shall post all the transactions of an accounting cycle, and see how the accounts of the ledger get filled. We shall distinguish cash, and money at the bank in a checking account.
It can be viewed as some rudimentary accounting software. You can changed the figures, but not the transactions themselves. It even presents some proto Income Statement and Balance Sheet, but these IS and BS are not the real final onesbecause they are computed before year-end 40 transactions of journal entries with ledger and trial balance.
They are only here to prepare our understanding of the year-end adjustements which we shall study in a forthcoming lesson. Once again, 40 transactions of journal entries with ledger and trial balance the sake of simplicity, we consider a shop which buys goods, records them following the traditional accounting method in a "Purchases account", and sells them without any physical transformation.
To illustrate the difference, let's view a shop which buys and sells products without any transformation, and a 40 transactions of journal entries with ledger and trial balance which buys pieces of cloth and yarn; with a sewing machine, makes final products; and sells the final products.
The goods handled by the shop have two prices: We will sell only one type of goods. A simplification of real life. In reality, over one accounting year, even a small firm makes thousands of transactions. We shall look at only 19, pretending they form a complete year. And we shall look at the first accounting cycle of the shop, when we start from a blank slate.
Let's also mention that this example is not an illustration of realistic good management. It is just an illustration of the mechanics of accounting and the evolution of accounts during the cycle. Here is the journal of "Joe' business" over our simplified complete accounting cycle. It is important to understand that this "bank account" is only our record of the money we have at the bank. What "comes" into the firm is the right to occupy premises for one quarter. It's gonna be consumed during the coming quarter.
Following traditional accounting we simply record them into a "Purchases account". The actual computation of the inventories and the goods sold will take place during the so-called "year-end-adjustments" at the end of the accounting cycle. Usually suppliers are paid between 15 days and 45 days later. Instead of calling it "Suppliers account" or "Creditors account", we called it "Deirdre account".
All this 40 transactions of journal entries with ledger and trial balance up to us. But if this makes you feel more comfortable, it is the "Creditors account". Miscellaneous stuff corresponding to shop expenses come into the firm, and will be consumed soon or are already consumed, like electricity. There again, pay attention to the fact that this is simply enough a page in our accounting system recording the money we have at the bank.
We grant her credit, so we don't receive money, only an IOU from Sally. An IOU comes into the firm. Remember, this is the origin of double-entry accounting: This makes it easy to remember the rule: We called this account "Sally account".
Of course, 40 transactions of journal entries with ledger and trial balance is a part of the debtors account. But we may very well split the debtors account into several accounts for each client to whom we grant credit, and give them the names we like. As for what leaves the firm, here we use the "Sales account". Remember that it is a special account designed to conveniently compute, later on, the profit or loss of the cycle.
The recording of the goods actually leaving the inventories will be taken care of during the year-end adjustments. Joe's firm sends a cheque to Jules garage in settlement of what we owe it. Since we are following the traditional accounting technique, during the accounting cycle we record all purchases into a "Purchases account".
We shall treat only at the end of the year the measurement of the value in inventory and the value buying price of goods actually sold during the cycle. Nothing prevents us, however, from having a glance at the physical inventory in our assets, and its evolution:.
Before transaction 5, we had nothing in inventory: We are not in the stockmarket, where it is possible to sell things we don't have Therefore our inventory becomes: So at the end of transaction 7, our inventory now is 70 items. The inventory will continue to evolve during the subsequent transactions, with purchases and sales. We shall see this in the next lesson.
And we shall see how we treat "cost of goods sold" and inventories, in double-entry accounting, in the lesson on "year-end adjustments". Text introduction a mini accounting software the accounting of a shop buying and selling prices simplification of real life the journal of transactions transaction 1: Joe's shop settles the account with the van supplier transaction 9: