5A: Verified (accurate) figures are entered into financial

journals
Businesses need accurate financial records. These are necessary to allow the business's
owners, investors and decision-makers monitor the performance of the business and as a
basis for future strategic and operational planning. Records are also needed for taxation
and auditing purposes. Your business will have processes in place to allow financial
records to be properly maintained on a daily basis.

Entering transactions
There are a range of ways for a business record financial transactions. They include
manual systems (hard copy) and computer-based (electronic) systems. Some businesses
may use a combination of both hard copy and electronic recording of transactions.

Computer systems can use general accounting software application eg MYOB, a specific
business built software application for the individual business (if very large) or a
spreadsheet solution. General accounting software comes as a complete package that is
installed on a computer. Once installed and set up the program is ready to use. There
may be some flexibility in setting up but the way the program works cannot be changed.
Some programs have additional modules for things like Point of Sale (POS) and payroll.
MYOB, Quicken etc are commercial products but some businesses will have accounting
systems designed specifically for themselves. Custom programs are more expensive but
are designed especially for the customer.

Spreadsheet systems are more suitable for a small business with few transactions. They
can have complex and useful reporting links. Spreadsheets, like Microsoft Excel or Lotus
1-2-3, can be used instead of a manual system. A worksheet replaces each book used in
a manual system. Although they are cheaper than proprietary accounting programs, they
rely on the person using the spreadsheet system to understand both the spreadsheet
program and required accounting principles. If the spreadsheet based system is not set
up and tested properly there may be underlying errors that affect the accuracy of the
accounts.

All transactions must be correctly entered - otherwise the calculations or end results of
the application will be incorrect.

Manual systems can be ledger-based or use a system where specially designed forms
transfer their information to other forms using a carbonless copying system while held in
a special framework, use a system of books, called ledgers, to record the daily
transactions or journals. There are some business systems on the market, such as
Kalamazoo Systems, that use customised forms and templates on a special framework.
By positioning the forms in a special order values are copied to other forms.

Journals and ledgers

Most businesses keep some form of a record of daily transactions in journals and/or
ledgers.

Journals contain a chronological account of all transactions which have an effect on the
financial position of the business. Businesses often use a number of journals to keep
different types of transactions separate.
Ledgers contain details of the relevant accounts of the business separated into those
related to assets (cash at bank), liabilities (accounts payable), expenses (advertising),
revenue (sales) and owner's equity (drawings).

Most businesses use a double entry accounting system. This recognises that when
the business receives something in a transaction, it gives up something in return. If
the business buys a ream of paper, it receives a ream of paper; however, it is
required to pay the supplier the price of the paper. To reflect this, both a credit and
debit entry is made in the relevant accounts of the business.

The title of the accounts which are used will depend on the assets, liabilities, income
received and expenses incurred by the business. Your business might have accounts
including cash sales, interest earned, revenue from professional services, rent,
stationery, etc.

The accounting records of businesses which use a double entry accounting system
are kept in a general ledger. Each account has its own page in the general ledger.
The balance of each account increases and decreases as transactions take place.
Transactions for each account are recorded throughout the accounting period,
usually one month.

Before details of transactions are posted to accounts in the general ledger, they are
recorded in journals. These contain a chronological record of transactions.

Most businesses use source journals to keep all of the similar transactions grouped
together.

Source journals include:

Cash payments journal --A cash payments journal records transactions where
a business pays cash for goods or services. In most cases, payroll payments
are not included in the cash payments journal as they are included in a
payroll journal.
Cash receipts journal - A cash receipts journal records transactions relating to
monies received by the business when a customer purchases goods or services
and pays cash.
Purchases journal - A purchases journal records items purchased by the business
using credit.
Purchases returns journal - A purchases returns journal records the return of
items purchased using credit.
Sales journal - A sales journal records transactions relating to sales using
credit. A sales journal should not be confused with a cash receipts journal. A
cash receipts journal is used to record money received for sales related items.
A sales journal shows items which have been sold but have not yet been paid
for.
Sales returns journal - A sales returns journal records details of items
recorded in the sales journal which have been returned.

General journal
The general journal is used to record unusual or infrequent transactions including:
Bad debts written off: -a bad debt occurs when goods or services have
been provided to a customer on credit but the customer is unable or unlikely
to make the payment.
Correction of posting errors: - if someone makes an error when posting
(entering) a transaction to a journal, the error will need to be corrected. This
 will be done in the general journal.
Interest expense: - an interest expense is the cost of borrowing money. In
this context, it is the interest charged by a lender to a business. Details of
interest charges are recorded in the general journal. Interest may be charged
due to late payment of an account
Interest earned: - interest earned is the interest a business collects from a
finance provider. Details are recorded in the general journal.
Opening entries: - opening entries are the entries which are required when
a business commences trading, opens new accounts, or at the start of a new
accounting period.
Purchase of a non-current asset on credit: - non-current assets are assets
which are not easily convertible to cash or assets not expected to become
cash in the current year. Examples of non-current assets include plant and
equipment, leasehold improvements, and trademarks. Details of non-current
asset purchases are recorded in the general journal.
Sale of a non-current asset on credit: - non-current assets are not easily or
expected to be converted to cash in the current year. Current assets are
things like cash (and cash equivalents such as money market funds),
accounts receivable, inventory, and marketable securities.
Transfer of funds between bank accounts: - a business can operate
more than one bank account. It might operate a cheque account for daily
operation and fixed term account for reserves. If funds are transferred
between bank accounts, a general journal entry shows the movement of
funds.
Withdrawal of stock and assets by owner: - if the business's owner
withdraws stock or assets from the business, there should be a general
journal entry to show the withdrawal.

Prepare the journal entry

Once you know whether each account affected by a transaction is to be recorded as
a debit or credit, you can make the journal entry.

Enter the date of the transaction in the left column.

Enter the name of the account to be credited next to the amount to be
credited in the credit column.
Enter the name of the account to be debited next to the amount to be
debited in the debit column.

Use the line underneath the credit and debit entries to briefly describe the
transaction.

Cash payments journal

Date Details
Debit Credit
31 Oct Cash 7,550.00
20XX
Vehicles 7,550
Purchased forklift
I

Follow business's policies and procedures when making journal entries.

These have been developed to meet a range of legislative and regulatory
 requirements such as those contained in corporation's legislation and tax
laws.
I and/or business technology such as scheduling
Use the appropriate software
equipment and calculators.
Ensure journals are updated regularly. This is important to make it less likely
that information will be forgotten and/or to ensure that queries can be
followed up whilst those involved can remember the circumstances of the
transaction.
Follow your business's requirements about describing transactions. It helps if
standard descriptions are used.
Use the account types which have been chosen by your business. This makes
it less likely that transactions which should be included in one account are
split between two accounts with different names.
If you are unsure which accounts to use or whether each one should be
debited or credited, discuss it with a supervisor or manager. Do not guess if
you are unsure.

Now complete the learning task below. (called task 15

in the activities tab)

1. What does the term verified figures mean?

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2. Why is it necessary for verified figures to recorded?

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3. Why is it important to promptly enter transactions into journals? Discuss in

about 4sentences

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