The book of original entry that records all the transactions of purchase and sale of assets on credit or in cash, about writing off the bad debts, correcting errors in ledger accounts and adjusting ledger entries all are recorded in general Journal. The ledger is a book where all the accounts are maintained and posted, example general ledger, sales ledger and purchase ledger (Warren & Jones, 2018).
The transactions which were previously recorded in the cashbook, purchases daybook, general journals daybook and the sales day book are posted in there ledgers accordingly. Assets, liabilities, Equity, Revenues and Expenses are the chart of accounts of any entity, we can say that chart of accounts are simply the types of accounts of the company which they use in recording the transactions.
Distinguished: Describe the act of posting a transaction from the general journal to the ledger. What difficulties could arise if no cross-indexing existed between the general journal and the ledger accounts?
When we enter a transaction into its specified ledger, that is, by taking into account all the information about that transaction as the date on which the transaction occurred, its money value and a brief description about the transaction (Simkin, Norman, & Rose, 2014). The transaction have two effects always as the debit and the credit both, so we need to give the effect of both debit and credit in the specified ledgers. A reference number is allocated to each transaction for cross referencing. If there will be no cross referencing then the case of errors will increase as the transaction could be posted to different ledger accounts.
Proficient: Prepare the journal entry required for each of the following transactions. Be sure to identify which part of the entry is the debit and which is the credit. Provide five correct responses:
- Cash was received for services performed for customers $1200.
Cash A/C Dr 1200
To Service Revenue 1200
- Services were performed for customer on account $4200.
Accounts Receivable A/C Dr 4200
To Service Revenue 4200
- Purchased machine for cash $30000.
Machinery A/C Dr 30000
To Cash 30000
- Capital stock was issued for $100000.
Cash A/C Dr 100000
To Capital Stock 100000
- Salaries for a period were paid to employees $24000
Salaries payable A/C Dr 24000
To Cash 24000
- Purchased a truck using note payable $35000
Truck A/C Dr 35000
To Note Payables 35000
Proficient: What are the purposes of an unadjusted trial balance? Describe the types of accounts that would appear on this type of trial balance.
The major purpose of using unadjusted trial balance is to list all the general ledger account balances prior to preparation of the financial statements and adjusting entries. The unadjusted trial balance is the starting point as the account balances and the adjustment entries that may be required before preparing the financial statements (Mourier, 2017).
Distinguished: If you found that the total of the debits column of the trial balance for a company is $200,000, while the total of the credits column is $180,000, what are some possible causes of this difference?
This can be because of the math error or simply because of listing the same item in the column twice or if the amount is by mistake omitted to be posted in the ledger. There can be circumstances that the amount entered is either wrong or the wrong debit or credit is made. So, we can do one thing before taking the total sum we need to read again and again the transaction before moving on to the other transaction.
Proficient: A student remembered that the side toward the window in the classroom was the debit side of an account. The student took an examination in a room where the windows were on the other side of the room and became confused and consistently reversed debits and credits. Would the student's trial balance have equal debit and credit totals? If there were no existing balances in any of the accounts to begin with, would the error prevent the student from preparing correct financial statements? Why?
Yes, the totals of the debit and credit side will be equal even if the student posted the transactions on the opposite sides, the trial balance would still be balanced. As regard to the financial statements, they have no debit or credit side. The student will be able to transfer the equity and liabilities amount on the right side from the trial balance and assets on the left side of the balance sheet.
Distinguished: Store equipment was purchased for $2,000. Instead of debiting the Store Equipment account, the debit was made to Delivery Equipment. Of what help will the trial balance be in locating this error?
As we do review the trial balance we can find the number of account for store equipment and the number of accounts denoting delivery. The posting will be cross verified in the ledger by the references and therefore it will be easy to verify. Then we can correct the trial balnce by recording the correct account with the correct amount. We can do this by deducting $2000 from the delivery equipment account and adding $ 2000 to the store equipment account and then will adjust the trial balance accordingly.
Proficient: What is the difference between horizontal and vertical analysis of financial statements?
In Horizontal Analysis the calculation of amount of an item and the percentage changes from year to year as from one year to the next year on the financial statements. Horizontal analysis shows the changes in the amount of corresponding financial statements over the period of time. Vertical Analysis is the analysis of financial statements in which each of the three major categories of accounts that is assets liabilities and equity are represented as a proportion of the total account (Weygandt, Kimmel & Kieso, 2015).
- How is each type calculated and presented for viewing by company stakeholders?
Amount Change = Amount of item in year(x) - Amount of item in Base Year(0)
Percentage change in the item = (Amount of item in year(x) ÷ Amount of item in base
year) X 100
For the Assets and Liabilities item they are expressed as a percentage of the total assets or Total Liabilities or equity.
Distinguished: How is this type of analysis used by management?
Management compares the data of different years for the decision making purpose and for the comparison with the industry as a whole. The analysis helps the management to compare their performance with the performance of the other companies. Many aspects can be taken in view with the analysis of financial statements they are: the Growth Prospect, Revenue, Profitability, Performance and Costs. The major use of this analysis is in the decision making process.
Mourier, L. (2017). Communicating financial reporting across continents. HERMES-Journal of Language and Communication in Business, 17(32), 145-165.
Simkin, M. G., Norman, C. S., & Rose, J. M. (2014). Core concepts of accounting information systems. John Wiley & Sons.
Warren, C. S., & Jones, J. (2018). Corporate financial accounting. Cengage Learning.
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Financial & Managerial Accounting. John Wiley & Sons.