To begin a transaction must be journalized Journalizing is the process of

To begin a transaction must be journalized

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To begin, a transaction must be journalized. Journalizing is the process of entering the effects of aledger. Postingis the process of recording in the ledger accounts the information contained in the
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recognize revenues when the company makes a sale or performs a service, regardless of when thecompany receives the cash. They recognize expenses as incurred,whether or not the company has paid out cash. The next chapter discusses accrual accounting in more detail. In the following Micro Train Company example, transaction 1 increases (debits) Cash and increases(credits) Capital Stock by $50,000. First, MicroTrain records the transaction in the general journal; second, it posts the entry to the accounts in the general ledger.Transaction 1: Nov. 28, 2005 Stockholders invested $50,000.Microtrain CompanyGeneral JournalPage 1DateAccount Titles and ExplanationsPost Ref.DebitCredit2005Nov28Cash10050,000 Capital Stock10850,000 Stockholders invested $50,000 cash in the businessCashCapital Stock50,000No other transactions occurred in November. The company prepares financial statements at the end ofeach month. Below is the company's balance sheet at November 30,2005. The balance sheet reflectsledger account balances as of the close of business on November 30, 2005. These closing balances are the beginning balances on December 1, 2005. The ledger accounts show these closing balances as beginning balances (Beg. Bal.).MicroTrain CompanyBalance SheetNovember 30, 2005AssetsLiabilities and Stockholders' EquityCash$50,000Stockholders' EquityCapital Stock$50,000Total Liabilities and Total Assets$50,000Stockholders' Equity$50,000Now assume that in December 2005, Micro Train Company engaged in the following transactions. The proper recording of each transaction is shown in the journal and then in the ledger accounts( posting in T-account form), with a proper description of the effects of the transactions.Transaction 2: Dec. 1 Paid cash for four small trucks, $40,000General JournalPage 1Accountantsuse the accrual basis of accounting. Under the accrual basis of accounting, they2005Nov 28 50,000Acct 100Acct 3002005Nov 28
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DateAccount Titles and ExplanationsPost Ref.DebitCredit2005Dec1Trucks15040,000 Cash10040,000 To record the purchase of four trucksOne asset, trucks, increases (debited); andTrucksanother asset, cash, decreases (credited) by$40,000 40,000Cash50,00040,000Transaction 3: Dec 1 Paid $2,400 cash for insurance on the trucks to cover a one-year period.General JournalPage 1DateAccount Titles and ExplanationsPost Ref.DebitCredit2005Dec1Prepaid Insurance1082,400 Cash1002,400 To record the purchase of insurance on trucks for one year period from Dec. 1Prepaid InsuranceAn asset, prepaid insurance, increases (debited); and asset, cash, decreases2,400(credited) by $2,400. The debit is to PrepaidInsurance rather than insurance expensebecause the policy covers more than thecurrent accounting period of December(insurance policies are usually paid oneCashyear in advance). Prepaid insurance is expensed as it is used up. If the insurance50,00040,000policy was only written for December, theDec 12,400entire $2,400 debit would have been to Insurance Expense.
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