Accounting - Term 1 - Week 5

Imagine Thandi runs a spaza shop in Soweto. Every day, she buys stock, sells airtime, and pays for electricity — sometimes even during load-shedding! Each transaction must be recorded to track her business’s money. The General Journal is where these transactions are first written down in detail, before being sorted into accounts. Think of it as the business’s diary, capturing every important event. For example, when Thandi buys bread stock for R500 cash, she records it in the General Journal. This ensures she doesn’t forget or mix up transactions. Many learners think the General Journal is only for rare or complicated transactions, but it’s actually used for all transactions that don’t fit into special journals. Getting this right is the first step to accurate accounting.

Picture Ahmed, who owns a tuck shop in Durban. When he buys cold drinks from a wholesaler, he gets an invoice. When he pays for cleaning, he receives a receipt. These papers are called source documents — they prove that a transaction happened. In South Africa, common source documents include cash slips, invoices, receipts, and EFT proof. Each one tells you what happened, when, and for how much. For example, a cash slip for R200 airtime sales on 10 February is the evidence you need to make a journal entry. Some learners skip this step and guess amounts, but in the real world, SARS or an auditor will want to see the proof. Always check the source document before recording a transaction.

Think of the General Journal as a minibus taxi logbook: every trip (transaction) must be recorded with details. Each entry has a date, the accounts affected, amounts, and a brief explanation. For example, if Lerato in Polokwane pays R1 000 for advertising, the entry will show the date, debit Advertising, credit Bank, and a narration like 'Paid for radio advert.' The debit account is always listed first, then the credit account indented below. Many learners mix up which account to debit or credit. Remember: expenses and assets increase on the debit side, while income and liabilities increase on the credit side. The narration is not just for teachers — it helps anyone understand why the entry was made.

After writing in the General Journal, transactions must be posted to the General Ledger. This is like sorting all the taxi fares into the right envelopes for petrol, repairs, and salaries. Each account in the ledger shows the total movement for that item. For example, if Sipho in Khayelitsha records three purchases of stock in the journal, all will be posted to the Trading Stock account in the ledger. A common mistake is to forget to post, or to post to the wrong account. Always double-check the accounts and amounts when posting, and use the journal entry as your guide.

Step 1: Read the source document. Thandi buys bread stock for R500 cash on 5 March. The cash slip is the proof, showing the date, amount, and what was bought. Step 2: Identify the accounts involved. Bread stock increases (Trading Stock), and cash decreases (Bank). Step 3: Decide which account to debit and which to credit. Trading Stock is an asset and increases, so it is debited. Bank is also an asset but decreases, so it is credited. Step 4: Write the journal entry: Date: 5 March. Debit: Trading Stock R500. Credit: Bank R500. Narration: Bought bread stock for cash. Step 5: Sanity check. The entry balances (R500 each side), matches the source document, and the narration is clear. Final answer: Trading Stock is debited, Bank credited, both with R500. This is the correct way to record a cash purchase in the General Journal.

Step 1: Use the previous example’s journal entry for guidance. Step 2: Open the Trading Stock and Bank accounts in the ledger, making sure each account is clearly labelled. Step 3: Post the debit side. In the Trading Stock account, write 5 March, 'Bank', and R500 on the debit side to show the increase in stock. Step 4: Post the credit side. In the Bank account, write 5 March, 'Trading Stock', and R500 on the credit side to show the decrease in cash. Step 5: Check that both accounts reflect the transaction and that the amounts match the journal entry and the source document. Final answer: Trading Stock account increases by R500, Bank account decreases by R500. This matches the journal entry and maintains the accounting equation. Always check that the posting is accurate and that the accounts are updated correctly.

Question: Lerato pays R1 000 by EFT for a radio advert on 12 March. What is the journal entry? Let’s think: Which accounts? Advertising (expense) increases, Bank (asset) decreases. Advertising is debited, Bank credited. Entry: Date: 12 March Debit: Advertising R1 000 Credit: Bank R1 000 Narration: Paid for radio advert by EFT. Now you try: Ahmed pays R600 cash for cleaning services. What is the journal entry? Answer: Date: [today’s date] Debit: Cleaning R600 Credit: Bank R600 Narration: Paid for cleaning services.

Question: Sipho receives R800 cash for airtime sales on 15 March. How do we post this? First, record the journal entry: Debit: Bank R800 (asset increases) Credit: Sales R800 (income increases) Now, post to the ledger: Bank account: 15 March, 'Sales', R800 on the debit side. Sales account: 15 March, 'Bank', R800 on the credit side. Now you try: Thandi receives R1 200 cash for cold drink sales. Post to Bank and Sales accounts. Answer: Bank: Debit R1 200 Sales: Credit R1 200

1. List three common source documents used in South African businesses, such as those found in a spaza shop or supermarket. 2. State which account is debited when a business buys stock for cash, and explain why this is the case. 3. Write the narration for a payment of R400 for electricity, making sure it is clear and concise.

1. Record the journal entry for Ahmed paying R750 cash for stationery, including the correct date and narration. 2. Post the entry from (1) to the correct ledger accounts, showing both the debit and credit sides. 3. Identify the error: A learner debits Bank and credits Stationery for a cash stationery purchase. Explain why this is incorrect and provide the correct entry.

1. Record and post the journal entry for Lerato receiving R2 000 by EFT for services rendered, including the narration and correct ledger postings. 2. Explain why source documents are important for SARS audits, using an example from a local business. 3. A business records a R1 500 payment for repairs as a debit to Repairs and a credit to Sales. Analyse and correct the error, explaining the impact on the accounts.

• Invoice
• Cash slip
• Bank statement
• Quotation

Answer: Cash slip

A cash slip is issued when cash is paid. An invoice is a request for payment, not proof of payment. Bank statements show transactions but not the specific purchase details, and quotations are only price offers.

• Trading Stock
• Bank
• Sales
• Capital

Answer: Bank

Bank is credited because cash leaves the business when stock is bought. Trading Stock is debited as it increases. Sales and Capital are not affected in this transaction. Many learners mistakenly credit Trading Stock, but that would show a decrease in stock, which is incorrect.

• To record all cash receipts
• To summarise income
• To record transactions not in special journals
• To calculate profit

Answer: To record transactions not in special journals

The General Journal is for transactions that don't fit elsewhere. Cash receipts go in the Cash Receipts Journal. Income summaries and profit calculations are not its main purpose.

• Sales
• Bank
• Capital
• Current Income

Answer: Bank

Assets like Bank increase on the debit side. Sales and income accounts increase on the credit side. Capital is a liability and increases on the credit side.

• Received R500 for repairs
• Paid for repairs
• Bought repairs
• Sold repairs

Answer: Paid for repairs

The narration should explain that the business paid for an expense. 'Received' and 'sold' are incorrect because they refer to income, not an expense. 'Bought repairs' is unclear and not standard practice. Examiners look for clear, standard narrations like 'Paid for repairs.'