In today's session we will have a look at the journal entries and I will show you how to account for a loan in the accounting records. First of all we need to have a look to see what we already did. We had a look at the sales journal and the sales journal is a summary of our monthly sales. We transferred the transactions to the data's ledger. And the titles duty generally were accounted for our purchases in the purchase journal. transactions were transferred to the creditors ledger and the titles to the general ledger.

We did the petty cash, data's receipts were transferred to the data's ledger created payments to the creditors ledger. And the titles to the general ledger and the previous session. We had a look at the cash book. The data's receipts were transferred to the data's ledger, creators payments to the creditors ledger and the titles to the general ledger. The data's ledger is a summary of all our data, and the title will agree with a balance in the data's control account in the general ledger. The creditors ledger is a summary of all our traders and the total will balance with the title in the create this contract account in the general ledger.

And today we will do the status journal create this journal and the general journal and author today. We will have dealt with all the different entries and we will have to copy the general ledger totals to the trial balance and prepare an income statement and balance sheet let's have a look at journal entries. journal entries are used to correct errors in the logistics of incorrect allocations or postings. journal entries are also used for certain provisions in the accounting process, we will make incorrect allocations and we need to correct these allocations and we will do it with general interest provisions will also be done by the general interest, we will provide for depreciation we will write to date and we will provide for future expenses. So, examples of general interest data and creditor corrections writing have added provisions for depreciation and to reallocate transactions in the general ledger.

Journal entries relating to datas are done did this journal journal entries relating to creators are done in the creators journal and general interests relating to the general ledger than in the general journal. Let's have a look at it it is true. It is receipt apothem. From ima it was incorrectly allocated to Jessie. So we received 4000 from Emma in, but incorrectly allocated the receipt to Jesse's account. So in the data's ledger, we have an account for AGC.

And again, for me in my in our does 4000 rent, I just add a 7000. And we allocated the receipt of 5000 into Jesse's account. But that's incorrect. We need to reallocate the receipt to my account. So at the moment, I Jesse owes us 2000 7000, less 5000 created 2000 but that's it. I actually I was 7000 now can counting records in ss 4000 but it's also included in my insert of the account right but 4000 on the account and now I don't miss any money.

The way to correct it is with it it is to say main is a data doesn't acid the acid needs to be come less minus. If an asset becomes less we need to create it 4000 and I just see is a data that is an asset the asset needs to become more plus if an asset becomes more we debit 4000 we copy and paste the general into the data's ledger in my aim from the datas journal 4000 traded And I Jesse from the data's journal 5000 David, I just see David's 12,000 rent credits 5000 So, balancing figure 7000 gives us 12 here transfer that balancing figure to the debit side New Balance 7000 in my in David 4000 rank list created 4000 New Balance zero a bad date a bad it is when the data as money and we know that we are not going to receive the money.

An account an outstanding amount of 6007 agent from data K or j needs to be written office that is in the data's ledger kr j is 6000 similar Tightening, and the general ledger. The data's control the balance of 6781 and we need to write off this balance. But it's not a transaction between data's the data will become less, and we need to allocate it to bad data in the general ledger. So we will do a data's journal. But we will account for the data's journal in the general ledger as well. First of all, Kyle Jason data data is an asset.

The asset reduces when an asset becomes less we need to create it 6780 rate and we will write it off as a bad deed a bad it is an expense expense. This will become more less expensive becomes more we need to debit 6780 and we have a description that did written off. So in the data's ledger, we need to write off the 6000 similar Nigerian, so copy and paste the data journal, this journal 6708 urine New Balance zero. But in the general ledger, the data's controller can as a balance of 6780. So we need to copy and paste this into into the general ledger. So kind of dice data from the data's journal 670.

New Balance zero and that dates from the data's journal 6780 and That is how we write off that did create this journal payment of 7500. In 2020 KBB was incorrectly allocated at g h. j. So we pied kvb. But we made a mistake we incorrectly allocated the payment to gh J. So in the creditors ledger, they have an account full KVD she has a balance of seven to 50. That's incorrect.

We already paid them. So they should have a balance of zero, g h j have a balance of 9000 by seven to 50. And according to our accounting records, we owe g h J. One 750. But that's incorrect. We are non thousand.

So we need to reallocate this time into kvb KDB is a creditor to liability, the liability needs to become less minus if a liability becomes less we need to debit seven to 15 g h j is a liability, the liability need to become more plus. If a liability becomes more we need to create it 7050 created you can see it's a transaction between creators, so we will only account for the transaction in the creditors ledger copy and paste KBB David from the creditors journal, seven to 50 New Balance zero trade at least debit New Balance zero G h J. Copy and paste from the creative This journal seven to 50 error 16240 balancing figure 9001 six 250 transfer that balance to the credit side New Balance 9000 and then a general journal payment to the value of 1250 to triple w e for stationery was incorrectly allocated to the T account from the cash payment journal in the journal we incorrectly allocated the payment for stationery to the cleaning account and we need to transfer this payment to the stationery can in the general journal stationery is in expense expense, the zero in the stationary cancel the expense will become more Plus, if an expense is becomes more we need to debit debit 1250 cleaning, cleaning is an expense is 1000 to 250 million in the account, the expense nature needs to reduce minus created one to 50 and then we copy and paste stationery from the general journal one to 50 and cleaning created one to 50 from the general journal, the balance is zero and the new balance for stationery one 250.

And then we have lunch Now, Alan is an agreement between two parties with one party agrees to lend the money to the other party and the other party agrees to repay the loan on certain conditions every specific period the Learn will consist of capital that needs to be repaid with interest. So, I went to the bank and I borrow 500 grand and I signed the agreement, I will read by the 500 grand in 10 installments or 60 grand each. So, I will repay 600 grand today difference between the 506 hundred is 100 grand and that is interest that is the cost of capital. So, it cost me 100 grand to borrow 500 grand from the bank. The interest can buy on a monthly quarterly or yearly basis. The agreement in the two parties will be In the interest rate payment conditions, so interest can be calculated in the monthly or quarterly or yearly versus the interest that is due is calculated and as any funds cost account are created and interest by the account debited.

So let's have a look at an example for 150 thousand rent from the bank and read by the loan in monthly installments of 10,008 at 10% interest per year, so I borrowed 150,000 that's the capital and you can 50,000 rent and I will read by the line in monthly installments of 10,000 10,000 rent and I need to buy 16 installments times 16 60,000 in less than a day. 50 A Barack and the difference is 10,000 that is the interest that I need to buy. So, the outstanding balances are 60,000 or 16 installments of 10,000 each. So, in the first month of buying installment of things first of all I need to calculate the interest for them. So I borrowed 150,000 the interest rate is 10% per year, sometimes about one divided by 12 that's the interest on 150,000 for one month, and that title is one 250.

So, I find installment of 10,000 in interest is 1250 10,000 list in 1250 leaves us with capital that was repaid of 8750. So out the bank and written 50,000 in capital read by 7.0 and 141,250 Rand in capital. If I am going to repay the loan back over the 16 months, I still owed him 150,000 of the month one, then the second installment in the Capital One for One to 50 interest rate the 10% times one over 12 and that is 117 7.08. That's the interest for the month. So, the interest is 117 7.08 About 10,000 10,000 117 7.08 is I double 2.92 that is the capital that are repaid on new capital balance 141 250 list, double eight double 292 and the new capital balances 132427 or eight and I owe the bank in total 940 thousand. But let's say I decided to settle this loan at the end of month two, then I don't owe the bank and 40,000 because in the is top interest for the next 14 months.

The amount that I need to repay the bank will be the one three to four to 7.8 at the end of the second month. So we need to prepare payroll general general to account for the transactions in the general engine. So, we borrowed 150,000 from the bank and we will read by in monthly installments of things at an interest rate of 10% first of all life is a liability the liability you go more plus for liability becomes more we need to create an unwritten 50,000 in bank bank is an asset the money was tied into the bank again the asset became more plus if an asset becomes more we need to debit hundred and 50,000. So, the loan accounted now for the capital and 50,000 created and then the x then finance charges. So, the loan is a liability the liability increased if a liability Increase we need to treat it 10,000 that's the interest that we will owe the bank over the period of the loan.

Outstanding finance charges 10,000. That's 10 in finance charges is an account that reduces the liability. So we accounted now for the past in finance charges credit at 1008. And now we owe the bank 160,008 over a period of 16 months. But if we decided on the first day that we received the money from the bank that we are going to read by the land, we will not have to pay 60,000 we will only pay and written 50,000. So we have asked in finance charges here.

There is a 10,000 men, David. So if we decide to settle the land on the first day, it's an 60 credit list 10,000 David, that's 50,000 that we need to repay to the bank nets the capital. But in this example, we decided to refi the line every 16 months. So, first installment bank bank is an asset, we find 10,000 and the bank account the asset reduced minus in asset becomes less we need to credit 10,000 learn lenders liability liability became less a liability becomes less we need to debit 10,000 so that line 10,000 debit now. So we owe the bank now underwritten 50,000 in capital and interest For a portion of that interest rate was interest want to find them, interest expense expense became more Plus, if expenses become more, we need to debit one to 50 and the outs then finance charges became less one to 50 created.

We didn't have the bank 10,000 in interest anymore. We already applied one to 50 so that's a credit of the and now we owe the bank a 715 interest. I'd 750 and you can have a look now, the loan was underwritten. 50 credit created. It was 10,000 Rand created for outstanding finance charges and that was 160. We read I think so we owe the bank I hundred and 50,000 in total.

The outstanding finance charges was 10,008 we buy 1250 interest and we still owe them an interest i'd 750 I mean 50,000 in title lace I seen five zero in future interest leaves us with capital of 141 250. So we are the bank at the end of the month 141 250 then the second installment bank payment 10,000 men bank is an asset the asset reduced minus the main credit lines liability liability became less 10,000 rain David So, Lee's 10,000 grant So we owe the bank 140,000 that's the balance the at the end of the second installment we added the bank and 40,000 but a portion was interest. Interest is an expense expense okay more plus 1177 dot zero right and then finance charges reduced 1177 dot zero right. So we buy an interest of 117700 right? So we still owe them in interest even 472 point nine to sign turtle, I owe them 140,000 but if I decided at the end of the second one that I am going to settle the loan and I need to buy the hundred and 40 I need to read by the capital 132 47 dot zero, right and that is 140,000 Is 7572 dot zero dot nine two.

So we've done a journal entry and now we need to copy and paste into the general ledger. So first of all 950,000 line and 50,000 created cancel that when the money was paid in the bank hundred and 50,000 cancel that one. Outstanding finance charges 10,000 in interest and David and 19,000 men traded candidate for that entry. Now you can see we are the bank and 60,000 men in title hundred and 50 plus thing. They asked any finance charges 10,000 and then we made the first installment bank 10,000 the interest rate And learn 10,000 10,000 and we owe the bank 150,000 on the Learn and we can 50 plus team listing and written 51 to five was an expense interest on two forms zero interest and 1250 D and now a new balance for outstanding finance charges eight 750 so we accounted for that then the second installment 10,000 into 10,000 loan cancer that created and David so we over the bank I underwritten 40,000 any title, capital and interest double one double signature I was interest double one double seven zero interest and the abstain finance charges reduced Double one double seven dot zero.

So the loan we owe 140 the outstanding finance charges 10 is one 250 is double one double soon right 7572 dot nine two and then 40,000 created lease the asset any finance charges of 757 to 2.2 will leave us with the capital that's outstanding 132 47 dot zero, right. So it's very important that you know that every installment have a portion interest and a portion capital. So interest we will allocate to the interest paid account. We will offset it against the outstanding finance charges and the payment of 10,000. We will offset against these loan, so we will get a new loan amount that's 140,000. And if we subtract the outstanding finance charges, we will get the capital that says then to the bank.

And then we need to have a look at the general ledger. The general ledger is a record of all the transactions on each account that we captured in the different journals. So the titles from the different journals were transferred to the general ledger and the titles of the cash book sales general purchase general petty cash and other general so capital in the general ledger. So all those titles were transferred to the general ledger in the double entry system is clearly visible in the general ledger. And the trial balance is compiled from the general ledger. So we will account for the increase in the different journals, we will prepare a general journal transferred into the general ledger.

And from the general ledger we will compile a trial balance. And from the trial balance we will compile an income statement and balance sheet. So let's have a look at the general ledger. So the general ledger is just a summary of all the journal titles. We've transferred the sales title into the sales account. All the cash book transactions were transferred to the bank account, the datas transactions will transfer to the debtors control again.

So these are the petty cash receipts of the data's the cash book receipts in the cash book and the sales from the sales journal. And we have a new balance the so the general ledger is just a summary of all the transactions from all the different journals. And we will use the general engine to compile a trial balance and an income statement and balance sheet guide to the manual and do the exercise on the lines and make sure that you match your account for them can do the calculations kelty calculate the interest and make sure that you understand that each and every installment consists of capital and interest and make sure that you know how to account for in the next session we will have a look at the assets. We will account for assets that we buy and again for assets that we sell and we will do examples on depreciation.

See in the next session.