Chapter 7, Problem 1CP

To determine

Introduction:

Summary Journals

• Summary journals are accounting documents prepared to record the financial transactions occurring during a month and then posting the totals of the same to the respective ledger accounts. Examples of Summary Journals are Sales Journals, Purchase Journal, Cash receipts and Cash payment Journals

• Sales Journal records the value of credit sales and cost of goods sold of such sales made during a given period. The value of the credit sales is transferred to the Accounts receivable ledger and sales ledger at the end of the month.

• Purchase Journal records the value of credit purchases made during a given period. The value of the credit purchases is transferred to the Accounts payable ledger and purchases' ledger at the end of the month.

• Cash receipts record the value of cash receipts and cash sales made during a period along with the cost of goods sold of such sales. Total of cash receipts is transferred to the Cash account at the end of the month.

• Cash payment Journals record the value of cash payments made for purchases and expenses during a given period. Total of cash payments is transferred to the Cash account at the end of the month.

Journal Entries

• Journal entries are the first step in recording financial transactions and preparation of financial statements.

• These represent the impact of the financial transaction and demonstrate the effect on the accounts impacted in the form of debits and credits.

• Assets and expenses have debit balances and Liabilities and Incomes have credit balances and according to the business transaction, the accounts are appropriately debited will be credited by credited to reflect the effect of business transactions and events.

To Prepare:

1. Sales Journal
2. Purchases Journal
3. Cash Receipts Journal
4. Cash Payments Journal
5. General Journal