The Accounting Information System - Journals

Question 1

Where are all business transactions first recorded in?

Answer 1

Journals

Question 2

What is a journal like?

Answer 2

A diary.

Question 3

What does the journal do?

Answer 3

It records all the business transactions in chronological order, i.e. sorted by date / in order of date. It records all the business transactions that happened during the day, the week and so on.

Question 4

Are different journals used for different transactions?

Answer 4

Yes.

Question 5

Name the three main types of journals that I must know.

Answer 5

Special Journals

Cash Book

General Journal

Question 6

List the four types of special journals.

Answer 6

1. Purchases Journal 2. Purchases Returns Journal 3. Sales Journal 4. Sales Returns Journal

Question 7

What is the purpose of the Purchases Journal?

Answer 7

To record all credit purchases of goods.

Question 8

What are the related source documents that are used for recording the transactions in the Purchases Journal?

Answer 8

Original invoices from the suppliers.

Question 9

What is the purpose of the Purchases Returns Journal?

Answer 9

To record all return of goods bought on credit.

Question 10

What are the related source documents that are used for recording purchases returns transactions in the Purchases Returns Journal?

Answer 10

Original credit notes from the suppliers.

Question 11

What is the purpose of the Sales Journal?

Answer 11

To record all credit sales of goods.

Question 12

What are the related source documents that are used for recording all credit sales of goods in the Sales Journal?

Answer 12

Copy of invoices sent to the customers.

Question 13

What is the purpose of the Sales Returns Journal?

Answer 13

To record all return of goods sold on credit.

Question 14

What are the related source documents that are used for recording sales returns transactions in the Sales Returns Journal?

Answer 14

Copy of credit notes sent to the suppliers.

Question 15

What is the purpose / role of the Cash Book?

Answer 15

To record all cash and cheques received and paid out, i.e. to record all cash transactions.

Question 16

Name the source documents used when cash and cheques are received.

Answer 16

Copy of receipts issued to customers. Remittance advice from credit customers Bank Statements.

Question 17

Name the source documents used when cash and cheques are paid.

Answer 17

Payment vouchers

Cheques

Original receipts from suppliers

Bank statements

Question 18

What is the purpose of the General Journal?

Answer 18

To record all other transactions not recorded in the Cash Book and Special Journals. Note that the source documents used depends on the transactions.

Question 19

What is the General Journal?

Answer 19

It is an all-purpose journal, and is used to record transactions that cannot be recorded in the Special Journals and Cash Book.

Question 20

List the items that are usually recorded in the General Journal.

Answer 20

1. To record the non-cash assets contributed by the owner and non-cash assets taken by the owner as drawings. Example: when the owner contributes a motor vehicle for business use or when he takes away inventory for his own / personal / private use. 2. To record assets and any liabilities that the sole proprietor / owner brings into the business when the business is first set up. Chapter 19

Question 21

List another item that is usually recorded in the General Journal.

Answer 21

3. Purchases and sales of non-current assets, e.g. property, plant and equipment, land, office equipment, fixtures and fittings, motor vehicles. Chapter 13

Question 22

List another item that is usually recorded in the General Journal.

Answer 22

4. To write off uncollectible debts. Chapter 14

Question 23

List another item that is usually recorded in the General Journal.

Answer 23

5. To record dividends when they are declared.

Question 24

List another item that is usually recorded in the General Journal.

Answer 24

6. To record adjusting entries at the end of the financial period.

Question 25

What is the purpose of making adjusting entries?

Answer 25

To ensure that income and expenses are correct. Chapters 11, 13 and 14

Question 26

List the types of adjusting entries.

Answer 26

1. Prepayments, accruals, income received in advance and income receivables. 2. Depreciation of non-current assets. 3. Allowance for impairment of trade receivables.

Question 27

List another item that is usually recorded in the General Journal.

Answer 27

To correct accounting errors. Example: a cash sale of $30 was recorded as $300. The correction is made in the General Journal.

Question 28

List another item that is usually recorded in the General Journal.

Answer 28

To transfer the profit or loss from the profit and loss account to the capital or retained earnings accounts. To transfer the drawings to the capital account. Chapter 19: Business Entities

Question 29

List another item that is usually recorded in the General Journal.

Answer 29

To record closing entries. At the end of the financial period, all income and expenses accounts are closed off to the trading or profit and loss accounts. Chapter 9: Income Statements.

Question 30

How are business transactions recorded in the General Journal?

Answer 30

In chronological order / in order of date.

Question 31

What does each journal entry include?

Answer 31

A narration, i.e. a brief / short description or explanation of the transaction.

Question 32

What is the use of the narration?

Answer 32

To help the accountant recall the background of each transaction without having to refer to source documents.

Question 33

What is the entry format for the General Journal?

Answer 33

See textbook or http://dineshbakshi.com/igcse-gcse-accounting/source-and-recording-of-data/revision-notes/1537-types-of-journals

Question 34

What is the limitation of the journals?

Answer 34

A business may have thousands of business transactions recorded in the journals. If the business wants to know how much it owes a particular supplier, the total amount owed by a credit customer or the total amount of goods bought in a month, it is difficult to go through all the records in the journals to gather the information.

Question 35

Explain the purpose of the general journal.

Answer 35

To record the following: 1. opening entries 2. closing entries 3. purchase and sale of fixed assets on credit 4. correction of errors, adjustments and transactions not recorded in other subsidiary books.