MUF0021: Fundamentals of Accounting
Study Area 2 - Recording Financial Data
*TOPIC 3 – JOURNALS
eBook Chapter 3
S2 2024*
Cornell Notes & Modelled Examples
Part 2 - JOURNALS
PART 2 handout contains:
Topic 3: Cornell Notes
Journals Journals
Accounting Assumptions (Accounting Entity)
Qualitative Characteristics (Relevance, Faithful
Representation, Verifiability)
Modelled Examples – Credit Journals (PJ and SJ) - pp 14 to 16
Modelled Examples – Cash Journals (CPJ & CRJ) - pp 17 to 20
Modelled Examples – General Journal (GJ) - pp 21 & 23
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Review
Recording
Review
Source Documents
Link between
source documents &
journals
What are Journals
Five Journals
1
Journals (Special Journals and General Journal) are used in the Recording
stage of the accounting process.
Review
What happens during
the Recording Stage?
What are Special KEY TERM
Journals?
A special journal is an accounting record that only contains details of one
group of transactions.
1. Sales Journal (SJ)
2. Purchases Journal (PJ)
3. Cash Receipts Journal (CRJ)
4. Cash Payments Journal (CPJ)
5.
2
Role of and Purpose of
Journals
SUMMARY
The main purpose of Special Journals is to summarise similar transactions to allow totals to be posted
(transferred) to the General Ledger. This makes the recording process more efficient as it reduces the
number of entries in the General Ledger.
3
Source Document –
Purchase Invoice
Purchases Journal
KEY TERM
The Purchases Journal is used to record the details of all transactions that
involve a credit purchase of stock by the business.
Column: Date
Column: Creditor
Column: Inv No
Column: Stock Control
4
Source Document –
Sales Invoice
Sales Journal
KEY TERM
The Sales Journal is used to record all transactions where stock was sold
on credit.
Column: Date
Column: Debtor
Column: Inv. No.
Column: Cost of sales
Column: Sales
Mark up
Example:
100% Mark-Up
5
Source Document –
Cheque Butt
Cash Payments Journal
KEY TERM
The Cash Payments Journal is used to record all transactions where cash
has been paid by the business.
SUMMARY
6
Column: Date
Column: Details
Column: Chq No
Column: Bank
Column: Creditors
Control
Column: Stock Control
Column: Wages
Column: Sundries
Source Document –
Cash Receipt
7
Cash Receipts Journal
KEY TERM
The Cash Receipts Journal is used to record all transactions where cash
has been received by the business.
Column: Date
Column: Details
Column: Rec. No.
Column: Bank
Column: Debtors Control
Column: Cost of Sales
Column: Sales
Column: Sundries
8
What about
transactions that do not
fit into one of the
Special Journals?
Source Document –
Memo
General Journal
KEY TERM
The General Journal is used to record infrequent, non-cash transactions,
which cannot be recorded in one of the special journals.
9
Column: Date
Column: Details
Debit
Credit
Narration
SUMMARY POINTS - JOURNALS
10
Accounting Assumptions KEY TERM - REVIEW
Accounting assumptions are guidelines that influence the way
accounting information is recorded.
ACCOUNTING KEY TERM – REVIEW Definition
ENTITY
The Accounting Entity assumptions states that the records of assets,
liabilities and business activities of the entity are kept completely
separate from those of the owner of the entity as well as from those of
other entities.
Examples of application to recording in journals:
Any transactions between the business and the owner must be recorded
into the appropriate journals. Contributions of assets should be recorded
as Capital and withdrawal of assets for personal use should be recorded
as Drawings.
Qualitative KEY TERM – REVIEW Definition
Characteristics
Qualitative characteristics are guidelines that inform the way accounting
reports are prepared.
RELEVANCE (QC) KEY TERM - REVIEW
Financial information must be capable of influencing decisions made by
users to help them make predictions and/or confirm or change their
previous evaluations.
Examples of application to recording in journals:
Relevance is achieved when all transactions are recorded into the
journals of the business, including transactions between the business
and the owner, such as capital contributions and drawings. This will
ensure all financial information that is capable of influencing decision-
making by users has been included in the reports of the business.
11
FAITHFUL KEY TERM – REVIEW definition
REPRESENTATION
(QC) Faithful representation states that financial information must be a truthful
representation of the real-world economic event and is complete, free
from material errors and without bias.
Example of application to recording in journals:
When stock is purchased it should be recorded into the appropriate
journal using the original price (cost price) rather than its selling price, as
the selling price is an estimate. This ensures that financial information,
such as the value of Stock Control reported in the Balance Sheet, is not
based on estimates but is free from error and bias and represents what
occurred.
VERIFIABILITY (QC) KEY TERM
Verifiability states that financial information should allow different
knowledgeable and independent observers to agree that the event is
faithfully represented.
Example of application to recording in journals:
Verifiability is achieved by retaining source documents. Source
documents provide the details of the transaction and evidence that the
transaction has occurred. Financial information is based on the data
from the source documents. Therefore, source documents enable an
independent party to verify that the financial information reported by the
business faithfully represents the transactions (events) that have
occurred of the business.
12
Modelled Examples
How to record transactions in Journals
Topic 3 Name of Journal
Special Journals Purchases Journal
Sales Journal
Cash Payments Journal
Cash Receipts Journal
General Journal General Journal
13
MODELLED EXAMPLES – RECORDING TRANSACTIONS IN SPECIAL JOURNALS
RECORDING IN CREDIT JOURNALS
PURCHASES JOURNAL
Date Invoice
Creditor Stock Control
2020 Number
Jan 1 Outdoor Living 12 11 000
5 Outdoor Room 126 600
12 Living Gardens 23 9 000
28 Outdoor Living 2 500 2 500
TOTALS
30 23 100
SALES JOURNAL
Date Invoice
Debtors Cost of Sales Sales
2020 Number
Jan 2 Eileen M384 1 500 3 000
8 Pacific Hotels M385 6 600 13 200
14 Botanic Cafes M386 6 000 12 000
29 T.Swift M387 600 1 200
30 TOTALS 14 700 29 400
14
ELEMENT Increase/Decrease/No Effect Amount
(A=L+OE)
Assets Increase 11 000
Liabilities Increase 11 000
Owner's Equity No effect 0
ELEMENT Overstated/Understated/No Effect Amount
(A=L+OE)
Assets Understated 11 000
Liabilities understated 11 000
Owner's Equity No effect 0
15
ELEMENT Increase/Decrease/No Effect Amount
(A=L+OE)
Assets Increase 1 500
Liabilities No efffect 0
Owner's Equity Increase 1 500
ELEMENT Overstated/Understated/No Effect Amount
(A=L+OE)
Assets understated 1 500
Liabilities No effect 0
Owner's Equity Understated 1 500
16
RECORDING IN CASH JOURNALS
Cash Payments Journal
Date Chq. Bank Creditors Stock
Details Wages Sundries
2020 No Control Control
Aug 2 Office Equipment 1001 3 500 3 500
5 Stock Control 1002 5000 5000
23 Rent 1003 900 900
24 Outdoor Living 1004 3 000 3000
24 Drawing 1005 1 200 1 200
30 Stock Control 1006 5 000 5 000
31 Loan-BIB Bank 1007 550 550
31 Wages 1008 3 000 3000
31 TOTALS 19 150
17
Cash Receipts Journal
Date Rec. Debtors Cost of
Details Bank Sales Sundries
2020 No Control Sales
Aug 1 Capital 500 50 000 50 000
6 Sales 501 2 000 1 000 2 000
10 Sales 502 2 000 1 000 2 000
20 Sales 503 1 200 600 1 200
29 Hilton Hotel 504 4 000 4000
31 Interest Revenue 505 20 20
31 TOTALS 59 220
18
ELEMENT Increase/Decrease/No Effect Amount
(A=L+OE)
Assets Decrease 3000
Liabilities Decrease 3000
Owner's Equity No effect 0
ELEMENT Overstated/Understated/No Effect Amount
(A=L+OE)
Assets Overstated 3000
Liabilities Overstated 3000
Owner's Equity No effect 0
19
ELEMENT Increase/Decrease/No Effect Amount
(A=L+OE)
Assets Increase 500
Liabilities No Effect 0
Owner 's Equity Increase 500
ELEMENT Overstated/Understated/No Effect Amount
(A=L+OE)
Assets Understated 500
Liabilities No Effect 0
Owner's Equity Understated 500
20
MODELLED EXAMPLES – RECORDING TRANSACTIONS IN THE GENERAL JOURNAL
Example 1:
OWNER CONTRIBUTES AN ASSET OTHER THAN CASH (Capital contribution)
Dec 1, 2020
The owner of May’s Outdoors contributed Office Furniture to the business $3000. (Memo.13)
ACCOUNT ELEMENT INCREASE or DEBIT or AMOUNT
DECRESE CREDIT
Office Furniture Assets Increase Debit 3 000
Capital Owner's Equity Increase Credit 3 000
GENERAL JOURNAL
Date Details General Ledger
2020 Debit Credit
Dec 1 Office Furniture 3 000
Capital 3000
The owner contributed office furniture to the business (memo 13)
Note: What MUST be included in the narration for this transaction?
21
Example 2:
OWNER WITHDRAWS STOCK FOR PERSONAL USE (Drawings of stock)
Dec 5, 2020
The owner of May’s Outdoor, withdrew 2 Outdoor Settings (stock) with a cost price of $600 each
(Memo. 14)
ACCOUNT ELEMENT INCREASE or DEBIT or AMOUNT
DECRESE CREDIT
Drawing Owner's Equity Decrease Debit 1 200
Stock Control Assets Decrease Credit 1 200
GENERAL JOURNAL
Date Details General Ledger
2020 Debit Credit
Dec 5 Drawing 1200
Stock Control 1 200
The Owner of May's Outdoor, withdrew 2 Outdoor Settings (Memo. 14)
Note: What MUST be included in the narration for this transaction?
22
Example 3:
OWNER WITHDRAWS OFFICE EQUIPMENT FOR PERSONAL USE (Drawings of non-cash asset)
Dec 15, 2020
The owner of May’s Outdoors withdrew Office Equipment $500 (Memo.15)
ACCOUNT ELEMENT INCREASE or DEBIT or AMOUNT
DECRESE CREDIT
Drawing Owner's Equity Decrease Debit 500
Office Equipment Assets Decrease Debit 500
GENERAL JOURNAL
Date Details General Ledger
2020 Debit Credit
Dec 15 Drawing 500
Office Equipment 500
The Owner of May's Outdoor withdrew Office Equipment (Memo.15)
Note: What MUST be included in the narration for this transaction?
23
