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7-6 Accounting [CH 7

The Accounting Journal
Business transactions are recorded in chronological order in a journal. The first

journal the reader is most familiar with is the check register for your checking account;
Figure 7.3. In this record you record the date of the check, the check number, make a
notation (memorandum) as to whom your check was given and what the purchase was
journal for and lastly, the amount of the transaction. You probably also use your check register
Accountant's book of entry
listing financial transactions to record deposits into your checking account. Your check register is a journal, kept by
chronologically. hand, and if you also use a computerized check book system then you transfer this
information to your computer. The bank also keeps a record of each deposit made and
each check written. Thus, a journal can consist of a hand‑prepared list or a computer

printout in firms with computerized accounting systems. In business a cash sale
increases the cash account while reducing inventory. Purchases of materials or
inventory, for instance, increase the supplies account and reduce cash.
A sample page from a journal is shown at the top of Figure 7.4. The accounts listed

on the journal page represent sources and uses of funds by the firm. The May 5
purchase of machinery from FMC cost $16,000. The firm agreed to pay $10,000 of the
posting total cost in ten days and the remaining balance at the end of the month. The payment
Recording journal entries in made to FMC on May 15 reduced the cash account by $10,000. On the other hand, the
the appropriate ledger
accounts. May 22 payment of $2,000 on his account by Joe Acosta increased the amount of cash
on hand by that amount.
The next step involves transferring the data contained in the journal entries to
individual accounts in the firm's ledger. This process is called posting, and is the

recording of the individual transactions from the general journal to specific ledger
accounts as illustrated in Figure 7.4. At the end of the accounting period, the data in
each ledger account is summarized and used as the basis for preparing the firm's
ledger accounting statements. A ledger, or book of account, is a specialized accounting book
Accounting book with
separate accounts such as that contains separate accounts for such items as cash, accounts receivable, accounts
cash, sales, and inventory. payable, inventory, machinery and equipment, sales, and salaries.
The bottom portions of Figure 7.4 show two ledger accounts: cash and accounts
receivable.

The Accounting Equation
The accounting equation is the basis of accounting and it is from this equation that
all reports, statements, and summaries are derived. The accounting reports are derived
from the Balance Sheet equation. The accounting equation is:

Assets = Liabilities + Owners’ Equity

Check Register: A
check register, is a RE CORD A L L CH A R GE S OR CRE D I T S T H A T A F F E CT YOU R A CCOUN T
journal used to
record all of the
checks, cash
payments, and
outlays of cash
during an
accounting period. A
check register
usually has columns
to include the dates,
check
number, payee,
account names
used, and
the credits and
debits associated
with the transaction.

Figure 7.3 A Personal Check Register

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