BUSN1001 BUSINESS REPORTING AND ANALYSIS
Tutorial 2 questions
Chapter 4: Business transactions
4.10 Both the journal and the ledger can be used to record a large number of
transactions. Differentiate between financia
...
BUSN1001 BUSINESS REPORTING AND ANALYSIS
Tutorial 2 questions
Chapter 4: Business transactions
4.10 Both the journal and the ledger can be used to record a large number of
transactions. Differentiate between financial record-keeping in the journal and the
ledger.
A journal is a book which records each business transaction shown on the source documents
in chronological order. An entity may record their transactions in separate journals for
transactions that occur frequently. For example: entities which deal mainly in cash will have a
cash receipts journal and cash payments journal. An entity dealing with credit will also have a
credit sales and credit purchases journal.
A ledger is an account that accumulates all the information about one item in the accounting
reports, e.g. sales, cash. It is often prepared using the summarised information from the
journals. For example: if you used special journals to record similar transactions such as cash
receipts or cash payments then you would post the totals from these journals to the ledger
accounts. There will be a separate ledger account for each item affected by the transaction and
each account will have a debit side and a credit side. The advantage of recording in the ledger
is that it summarises all the transactions affecting one account e.g. Wages.
4.15 You are the bookkeeper for Haute Fashions and on review of the business's
records and reports you realise that the trial balance does not balance. Your
supervisor has asked you to investigate why this might have occurred. Explain
with examples what type of errors would have caused the trial balance not to
balance.
The three common errors are; single entry errors, transposition errors and incorrect entries.
Example of single entry error:
A single entry error occurs when only one aspect of the transaction has been recorded, e.g.
provided sales on credit and the entity records only the increase to the Sales revenue accounts
and fails to record the increase to the Accounts receivable account.
Example of a transposition error:
Recording the purchase of office supplies for cash $490 where the decrease in cash is recorded
as $409 but the income in office supplies is recorded as $490. This is a transposition error as
the difference between the correct amount and the recorded amount is $81 and this amount is
divisible by 9
[Show More]
