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CHAPTER 6 The Journal and Source Documents

SECTION 6.1 REVIEW QUESTIONS (page 180)

1. “The accounting entries become scattered through the ledger” means that the individual
debit and credit amounts contained in one accounting entry are recorded in a variety of
accounts throughout the ledger.

2. Recording each transaction separately and in chronological order provides an important,

continuous record of all transactions. The journal makes future investigations into the
accounting records easy.

3. A journal is a book in which the accounting entries for all transactions are first recorded, in
order of date, before they are recorded in the ledger accounts.

4. A journal entry is the complete accounting entry for a transaction in the form in which it is
written in the general journal.

5. Journalizing is the process of recording accounting entries in the journal.

6. A journal is known as a book of original entry because it is the place where the accounting
entries are first recorded.

7. The two-column general journal has a column for the date, the account names, and the
posting references, and then two money columns: one for the debit amounts and one for the
credit amounts.

8. In the general journal, a blank line is left between journal entries to show where one journal
entry ends and another begins.

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SECTION 6.1 REVIEW QUESTIONS (continued)

9. A. The year is always entered at the very top of the date column.

B. The year is re-entered in the date column at the point where a new year begins.

C. The month is always entered on the first line of the date column.

D. The month is re-entered in the date column at the point where a new month begins.

E. The day is recorded for every transaction.

10. The accounts that are to be debited are recorded first.

11. The accounts that are to be credited are indented.

12. Explanations are recorded immediately beneath the debits and credits, beginning at the left
side of the Particulars column and staying within it.

13. The purpose of an explanation in a journal entry is to make each entry unique. The
explanation usually contains the reference number for the source document related to the entry.

14. Besides a daily list of accounting entries, the journal provides a place to work out the
accounting entries for the various transactions and is a good reference for all the transactions
completed by the business since they are in order of date.

15. The opening entry is the very first journal entry recorded in a journal. It is taken from the
account balances in the balance sheet.

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SECTION 6.1 EXERCISES (page 180)

Exercise 1, p. 180
GENERAL JOURNAL PAGE 17

DATE PARTICULARS P.R. DEBIT CREDIT

20–
Feb. 3 Rent Expense 3 5 0 0 –
Bank 3 5 0 0 –
Paid February’s rent; cheque No. 411

5 A/P—Western Electric 4 0 0 –
Bank 4 0 0 –
Paid Western Electric on account;
cheque No. 412

7 Bank 6 7 5 –
Repair Revenue 6 7 5 –
Repair service for cash;
sales receipt No. 5689

10 T. Castillo, Drawings 2 0 0 0 –
Bank 2 0 0 0 –
Owner withdrew cash; cheque No. 413

11 Bank 9 5 0 –
A/R—C. Jacobs 9 5 0 –
Payment of sales invoice No. 5652

14 Truck Expense 4 8 5 –
Bank 4 8 5 –
Repaired truck; cheque No. 414

17 Light and Heat Expense 3 7 5 –

Bank 3 7 5 –
Paid for utilities; Confirmation No. 22321

24 A/R—D. Steiger 1 1 7 5 –
Repair Revenue 1 1 7 5 –
Repair on account; invoice No. 5690

28 Wages Expense 2 0 0 0 –
Bank 2 0 0 0 –
February wages; cheque No. 415

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SECTION 6.1 EXERCISES (continued)

Exercise 2, p. 181
A. PAULA PERNA
BALANCE SHEET
JUNE 1, 20–

Assets Liabilities
Bank $ 2 5 0 0 – A/P––The Stationery Store $ 3 2 5 0 –
Law Library 6 5 0 0 – Loan Payable 8 7 5 0 –
Office Equipment 8 2 5 0 – Total Liabilities $12 0 0 0 –
Automobile 16 5 0 0 –
Owner’s Equity
P. Perna, Capital 21 7 5 0 –
Total Assets $33 7 5 0 – Total Liabilities & Equity $33 7 5 0 –

B., C.
GENERAL JOURNAL PAGE 1

DATE PARTICULARS P.R. DEBIT CREDIT

20–
Jun. 1 Bank 2 5 0 0 –
Law Library 6 5 0 0 –
Office Equipment 8 2 5 0 –
Automobile 16 5 0 0 –
A/P—The Stationery Store 3 2 5 0 –
Loan Payable 8 7 5 0 –
P. Perna, Capital 21 7 5 0 –
Opening entry

1 Rent Expense 3 5 0 0 –
Bank 3 5 0 0 –
Paid June’s rent

2 Office Supplies 3 7 5 –
A/P—The Stationery Store 3 7 5 –
Bought supplies on account

3 Bank 1 2 0 0 –
Fees Earned 1 2 0 0 –
Legal service for cash

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SECTION 6.1 EXERCISES (continued)

Exercise 2, p. 181 (continued)
B., C. (continued) GENERAL JOURNAL PAGE 2

DATE PARTICULARS P.R. DEBIT CREDIT

20–
Jun. 5 A/R—R. Spooner 6 5 0 –
Fees Earned 6 5 0 –
Legal service on account

8 A/P—The Stationery Store 1 0 0 0 –

Bank 1 0 0 0 –
Payment on account

10 A/R—T. & R. Builders 1 1 0 0 –

Fees Earned 1 1 0 0 –
Legal service on account

11 Bank 3 5 0 –
A/R—R. Spooner 3 5 0 –
Received on account

15 Car Expense 8 0 –
Bank 8 0 –
Paid for gasoline

20 Wages Expense 4 5 0 –
Bank 4 5 0 –
Part-time secretarial help

24 General Expense 6 5 –
Bank 6 5 –
Paid for postage

24 Loan Interest Expense 6 0 –

Loan Payable 2 6 0 –
Bank 3 2 0 –
Monthly payment

30 P. Perna, Drawings 4 0 0 –
Car Expense 5 0 –
Bank 4 5 0 –
Owner’s withdrawal

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SECTION 6.1 EXERCISES (continued)

Exercise 3, p. 182
• The page number is missing.
• The year is missing.
• The month, Feb., is repeated for every transaction. It should only appear at the top of the page.
• On Feb. 7, Supplies, the Dr, should be listed before the Cr, Bank.
• On Feb. 10, the amount of Loss on Sale, should be $160. ($250 – $90 = $160)
• On Feb. 22, the date is repeated twice and the description is missing.
• The date, 22, is missing from the $125 sale to E. James.
• Service for E. James performed on account (not for cash) since it is debited to A/R.
• On Mar. 3, the amounts have been reversed: the Dr should be a Cr and the Cr a Dr.

Exercise 4, p. 183
A. The owner, Kelly Marshall, invested $5000 into the business.
B. Supplies worth $530 were purchased with cash.
C. The owner, Kelly Marshall, withdrew $200 cash for her personal use.
D. Goods or services worth $220 were sold to Jan Vasko on account.
E. Supplies worth $170 were purchased from Fain Brothers on account.

Exercise 5, p. 183

GENERAL JOURNAL PAGE 1

DATE PARTICULARS P.R. DEBIT CREDIT

20–
Aug. 1 Bank 2 2 0 0 –
Office Equipment 6 9 0 0 –
Land 92 5 0 0 –
Building 185 9 0 0 –
A/P—Diamond Equipment 3 5 0 –
Mortgage Payable 132 5 6 0 –
R. D’Alvese, Capital 154 5 9 0 –
Opening entry

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SECTION 6.1 EXERCISES (continued)

Exercise 6, p. 183
GENERAL JOURNAL PAGE 14

DATE PARTICULARS P.R. DEBIT CREDIT

20–
Aug. 3 Bank 4 5 2 25
A/R—P. Daniel 4 5 2 25
Received full payment of invoice No. 4544

6 A/P—Walberg Bros. 3 0 0 –
Bank 3 0 0 –
On account; cheque No. 112

9 Cleaning Supplies 4 1 2 78
A/P—Merrick Products 4 1 2 78
Purchased supplies on account;
invoice No. 3321

10 Bank 3 1 4 –
Service Revenue 3 1 4 –
Window washing for cash;
deposit slip No. 2321

15 Cellphone Expense 1 8 3 99
Bank 1 8 3 99
Paid bill online; confirmation No. 3335

19 C. Lehto, Drawings 1 2 0 0 –
Bank 1 2 0 0 –
Owner’s personal use; cheque No. 113

20 Truck Expense 1 1 4 56
Bank 1 1 4 56
Paid for gas with debit card;
receipt No. 89302

25 Miscellaneous Expense 7 5 –
Cleaning Supplies 7 5 –
To correct a previous error

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SECTION 6.2 REVIEW QUESTIONS (page 193)

1. Some transactions that require journal entries are initiated by the owner, sales people,
department supervisors, managers, and other authorized people.
2. The accounting department learns about all the transactions in a business through the
source documents that are sent to the accounting office.
3. A source document is a business paper that provides all the details about a business
transaction.
4. Source documents are used by the accounting department as the primary source of
information for accounting entries.
5. A transaction that would not have a conventional source document would be a withdrawal
of money, by the owner, from the business for personal use.
6. The employees outside of the accounting department who made the transactions may need
to see the source documents on file to check the details. An auditor may also need to see the
source documents.
7. A cash sales slip is a business form used to record the details of a cash sale.
8. A sales invoice represents a sale on account, which has yet to be paid for, while a cash sales
slip represents a sale for cash, which has been paid in full.
9. The vendor is the business selling the goods or services.
10. A point of sale terminal is a computerized sales register that allows a business and its
customers to exchange funds electronically.
11. False. When a customer uses a credit card to purchase an item, the business debits Bank
because credit card purchases are treated like cash receipts.
12. A purchase invoice is a document received from a supplier when you purchase goods or
services on account. The supplier calls it a sales invoice but you, the buyer, refer to it from
your own point of view as a purchase document.
13. All journal entries for purchase invoices are not the same because businesses purchase a
variety of goods and services from many different suppliers. Some purchases, for example,
will be for assets, others will be for services (expenses). While the debits change for purchase
invoices, the credit to accounts payable remains constant.
14. A cheque itself is not used as a source document because it must be sent out to the payee.
A copy of the cheque is kept and used as a source document.
15. In business, a payment on account is the most common transaction for which a cheque is
issued.
16. The supporting documents that are needed for payment by cheque are an invoice or bill that
shows the details of the transaction and a copy of the cheque.
17. Cash receipts are the cash and cheques that are received by a company in the course of doing
business.

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SECTION 6.2 REVIEW QUESTIONS (continued)

18. It is necessary to prepare a cash receipts daily summary because the cheques a company
receives as payment cannot be kept as source documents. They must be sent to the bank to be
cashed. The cash receipts daily summary and copies of the cheques are source documents for
the funds received.
19. The clerk prepares the cash receipts listing using the tear-off portion of the cheques and the
remittance advices that accompany the cheques.
20. Banks issue bank advices to inform clients about transactions in their bank accounts that
originate from the bank. The bank will also use bank statements to inform clients of such
transactions.
21. From the bank’s point of view, a client’s bank account is a liability. To decrease a client’s
account requires a debit entry because it is a liability account, so a debit memo is sent to
inform the client. From the business’s point of view, their bank account is an asset. The debit
memo is a decrease in their bank account, so it requires a credit entry at the business’s end.

SECTION 6.2 EXERCISES (page 193)

Exercise 1, p. 193
A. The document is a cash receipts daily summary.
B. The cash receipts daily summary is a source document for cheques coming in from customers
on account.
C. The cash receipts daily summary is compiled from cheques and remittance advices.

D. The cash receipts daily summary is prepared because the cheques cannot be used as source
documents since they will be deposited in the bank.
E. On account means that the amount received is to pay some portion of an outstanding
account balance. Invoice 4502 means that the cheque is to pay for that specific invoice.
F.

DATE PARTICULARS DEBIT CREDIT

20–
Mar. 14 Bank 1 2 3 0 03
A/R—Degagne Machine Shop 5 0 0 –
A/R—Kivella Bake Shop 3 1 5 43
A/R—Molner Paints 2 1 4 60
A/R—Robitaille Taxi 2 0 0 –

G. G. Smalley is the clerk who prepared the cash receipts list.

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SECTION 6.2 EXERCISES (continued)

Exercise 2, p. 194
A. The document is a cash sales slip.
B. The cash sales slip is a source document that provides evidence and details of a transaction
where goods or services are sold for cash.
C. Davidson Tree Experts issued the document.
D. The document number is an accounting control method that ensures all cash sales are
recorded and no slips are lost or faked. It also provides a reference number in case the
transaction needs to be referred to later.
E.

DATE PARTICULARS DEBIT CREDIT

20–
Mar. 10 Bank 3 3 0 –
Fees Earned 3 3 0 –

Exercise 3, p. 195
A. The document is a sales invoice and a purchase invoice.
B. Knutsen and Trebley is the sender. Hansen and Company is the recipient.
C. It is a sales invoice to Knutsen and Trebley. It is a purchase invoice to Hansen and
Company.
D.

DATE PARTICULARS DEBIT CREDIT

20–
Mar. 17 A/R—Hansen and Company 4 9 8 50
Fees Earned 4 9 8 50

E.

DATE PARTICULARS DEBIT CREDIT

20–
Mar. 17 Legal Expense 4 9 8 50
A/P—Knutsen and Trebley 4 9 8 50

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SECTION 6.2 EXERCISES (continued)

Exercise 4, p. 195
A. The document is a cheque.
B. Presto-Can Company is my employer.
C. The document was sent to my company in payment of three sales invoices.
D. The broken line divides the cheque from the tear-off portion of the cheque.
E. The information beneath the broken line shows which invoices this cheque is to pay for,
along with a total.
F.

DATE PARTICULARS DEBIT CREDIT

20–
Mar. 10 Bank 1 3 6 8 30
A/R—Carbide Tools Limited 1 3 6 8 30

G. The upper portion of the document, the cheque, is deposited in the bank.

Exercise 5, p. 196
A. The document is a bank credit advice.
B. A journal entry is necessary in the books of Electroniks Company.
C.

DATE PARTICULARS DEBIT CREDIT

20–
Mar. 6 Bank 3 6 2 04
Interest Earned 3 6 2 04

SECTION 6.3 REVIEW QUESTIONS (page 205)

1. Governments tax business transactions to collect revenue to fund services like education,
healthcare, and social assistance programs.
2. The four basic principles that help with the accounting for sales taxes are the following.
One, tax dollars are charged to the buyer of goods. Two, these tax dollars are collected
by the seller and recorded in a separate account. Three, these tax dollars rightfully belong to
the government. Four, the seller sends these tax dollars to the government at appointed times.
3. Retail sales taxes are charged to the final buyer of goods (and some services).
4. The purchaser does no special accounting for retail sales tax. It is the seller’s responsibility
to account for the retail sales tax.
5. PST collected from customers is recorded in the PST Payable account, which is a liability
account.
6. PST must be remitted to the government every month by the 15th day of the following
month.

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SECTION 6.3 REVIEW QUESTIONS (continued)

7. A business may be required to pay sales tax to the government before it has been collected
from a customer if the company sells on credit. The customer might take a month or two
to pay their bill but sales tax must be remitted on the 15th of the following month for all
transactions, whether or not the customer has paid.

8. A value-added tax is a tax charged to both goods and services as they pass through the
different stages of production and delivery.
9. The Canada Revenue Agency refers to HST refunds as input tax credits.
10. A business is required to register for the GST/HST if it has sales of taxable goods and
services worth $30 000 or more.
11. When a company registers for the GST/HST, it is assigned a special business number and
is advised whether to report and remit the tax monthly, quarterly, or annually.
12. GST/HST is remitted monthly, quarterly, or annually depending on the type of business.
13. One difference between the GST and HST is that the GST rate is 5% and the HST rate
is higher because it contains the federal and provincial portion of the tax. One similarity
between the GST and HST is that both taxes result in a 5% value-added tax being sent to
the federal government.
14. A business would want a separate account for the HST or GST it pays but not for the PST it
pays because it can deduct HST or GST from the amount that it owes the federal government.
PST cannot be deducted from the amount owed to the provincial government, so there is no
point in recording it in a separate account.
15. A contra account is an account that has a balance that reduces or offsets the balance of a
closely related account.
16. Some accountants prefer to use a contra account such as HST Recoverable to easily see the
debits and credits related to a certain type of account (i.e., HST paid and HST collected).
Quick access to this information is useful when filling in government forms.
17. This statement is correct since HST Recoverable normally has a debit balance, just as any asset
has; and, just as any asset, HST Recoverable has a dollar value that can be claimed by the
owner of the business. The account may appear in the asset section of the ledger, but is often
found in the liability section in order to conveniently calculate the HST owed.

18. Clearing an account balance means to bring it to zero. You would want to clear balances
in HST Recoverable and HST Payable when you are remitting your HST payment to the
government.

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SECTION 6.3 EXERCISES (page 205)

Exercise 1, p. 205
A.

Date Amount before PST PST at 8% Total Amount

($) ($) ($)
Jan 6 75.00 6.00 81.00
Jan 7 120.00 9.60 129.60
Jan 8 58.60 4.69 63.29
Jan 9 98.00 7.84 105.84

B.

GENERAL JOURNAL PAGE

DATE PARTICULARS P.R. DEBIT CREDIT

20–
Jan. 6 Bank 8 1 –
Sales 7 5 –
PST Payable 6 –
Cash sale; cash sales slip No. 4923

7 Bank 1 2 9 60
Sales 1 2 0 –
PST Payable 9 60
Cash sale; cash sales slip No. 4924

8 Accounts Receivable 6 3 29
Sales 5 8 60
PST Payable 4 69
Sale on account; invoice No. 7828

9 Accounts Receivable 1 0 5 84
Sales 9 8 –
PST Payable 7 84
Sale on account; invoice No. 7833

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SECTION 6.3 EXERCISES (continued)

Exercise 2, p. 205
A.

DATE PARTICULARS DEBIT CREDIT

20–
Jul. 3 A/R—McCuaig Supply 1 2 4 9 76
Sales 1 1 6 8 –
PST Payable 8 1 76
Sales invoice No. 3267

B.

DATE PARTICULARS DEBIT CREDIT

20–
Jul. 3 J. McCuaig, Drawings 1 2 4 9 76
A/P—Falcon Lake Marina 1 2 4 9 76
Invoice No. 3267; goods were for
owner’s personal use.

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SECTION 6.3 EXERCISES (continued)

Exercise 3, p. 206

GENERAL JOURNAL PAGE 23

DATE PARTICULARS P.R. DEBIT CREDIT

20–
Nov. 15 Bank 1 3 6 7 30
Fees Earned 1 2 1 0 –
HST Payable 1 5 7 30
Sales tickets for the week—Nos. 160 to 169

17 Property Taxes Expense 1 5 0 0 –

A/P—Municipality of Marmora 1 5 0 0 –
Tax bill for July 1 to Dec. 31

18 Maintenance and Repairs Expense 8 7 4 80

HST Recoverable 1 1 3 72
A/P—Highway Lumber 9 8 8 52
Repairs of trailer sites; invoice No. 707

19 Maintenance and Repairs Expense 6 0 4 80

HST Recoverable 7 8 62
A/P—Corcoran Sod Farm 6 8 3 42
For trailer site repairs; invoice No. 292

20 Telephone Expense 1 1 2 92
HST Recoverable 1 4 68
A/P—BowMac Telephone Co. 1 2 7 60
Telephone expense for October;
invoice No. 33542

22 Bank 1 6 0 4 60
Fees Earned 1 4 2 0 –
HST Payable 1 8 4 60
Sales tickets for the week—Nos. 170 to 184

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SECTION 6.3 EXERCISES (continued)

Exercise 4, p. 207
A.
GENERAL JOURNAL PAGE

DATE PARTICULARS P.R. DEBIT CREDIT

20–
Oct. 19 A/R—Booker Industries 1 4 1 2 50
Sales 1 2 5 0 –
GST Payable 6 2 50
PST Payable 1 0 0 –
Sales invoice No. 459

19 A/R—Genco Corporation 1 6 9 5 –
Sales 1 5 0 0 –
GST Payable 7 5 –
PST Payable 1 2 0 –
Sales invoice No. 460

20 A/R—Hall Industries 3 0 5 1 –
Sales 2 7 0 0 –
GST Payable 1 3 5 –
PST Payable 2 1 6 –
Sales invoice No. 461

22 Telephone Expense 3 1 3 20
GST Recoverable 1 5 66
A/P—Bell Cellphones 3 2 8 86
Invoice No. 49390

25 Office Supplies Expense* 8 9 2 30

GST Recoverable 4 1 31
A/P—Great Stationers 9 3 3 61
Invoice No. 15586

*The cost of office supplies

includes PST; the calculation is
826.20 × 1.08. GST is on the base
price: 826.20 × .05.

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SECTION 6.3 EXERCISES (continued)

Exercise 4, p. 207 (continued)
B.
GENERAL JOURNAL PAGE

DATE PARTICULARS P.R. DEBIT CREDIT

20–
Oct. 19 A/R—Booker Industries 1 4 1 2 50
Sales 1 2 5 0 –
HST Payable 1 6 2 50
Sales invoice No. 459

19 A/R—Genco Corporation 1 6 9 5 –
Sales 1 5 0 0 –
HST Payable 1 9 5 –
Sales invoice No. 460

20 A/R—Hall Industries 3 0 5 1 –
Sales 2 7 0 0 –
HST Payable 3 5 1 –
Sales invoice No. 461

22 Telephone Expense 3 1 3 20
HST Recoverable 4 0 72
A/P—Bell Cellphones 3 5 3 92
Invoice No. 49390

25 Office Supplies Expense 8 2 6 20

HST Recoverable 1 0 7 41
A/P—Great Stationers 9 3 3 61
Invoice No. 15586

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SECTION 6.3 EXERCISES (continued)

Exercise 4, p. 207 (continued)
C. a. The accounts receivable and sales amounts are the same under both systems. The total tax
paid is also the same under both systems. The only difference is that in the first system, the
total tax owed is split between GST and PST.

b. The amount owed to Bell Cellphones was smaller with the GST/PST system because PST
was not charged on the service. PST is generally charged only on goods while HST is
charged on a range of services as well as goods.

c. The Office Supplies expense was smaller under the HST system because businesses recover
the HST they pay. Under GST/PST, businesses have to absorb the cost of PST if they are
the final consumer of the goods.

SECTION 6.3 COMMUNICATE IT (page 208)

Students should point out to Mr. McKill that the source of the confusion comes from the different
accounting points of view held by the two parties. From the business’s point of view, the HST
Recoverable account is debited because it is used to reduce a tax liability. The amount of HST
owing accumulates in the HST Payable account with credits and it decreases in the HST
Recoverable account with debits. The government holds the opposite point of view. From its
perspective, the HST owed by McKill’s Consulting is a receivable, in other words, an asset. Assets
increase with debits and decrease with credits. When the government issues an Input Tax Credit,
the credit reduces its HST Receivable—McKill’s Consulting account.

SECTION 6.4 REVIEW QUESTIONS (page 213)

1. The main purpose of the AutoFill feature is to save time by having the spreadsheet software
enter data into cells for you.
2. The AutoFill feature needs only one cell containing the first month in order to fill in a list of
months.
3. An absolute cell reference is a cell reference that will not change when it is copied to a new
location.
4. To make a cell reference absolute, type a dollar sign before the letter and number of the cell
reference. For example, to make cell C4 absolute, type $C$4. The shortcut for entering the
dollar signs is to press Alt/F4 (Windows) or Command/T (Mac) after pointing to a cell. You
can also use these shortcuts when the cell reference is highlighted.

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SECTION 6.4 EXERCISES (page 213)

Exercise 1, p. 213
A. to C. This is a spreadsheet exercise.

Dropping the sales projections is reasonable. Business people who use spreadsheet models will
experiment with multiple input variables when performing analytical tasks. The PST factor is a
percentage used to calculate the cost savings gained by eliminating the 7% cost that businesses pay
to their suppliers on purchases. Dropping the factor to 4% from 7% seems very reasonable because
some suppliers may be inclined to gain from the HST system by increasing their prices. The what-if
variables produced a significant impact on cash with an increase of $73 170.

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CHAPTER 6 REVIEW EXERCISES (page 215)

Using Your Knowledge

Exercise 1, p. 215

Nature of Required Journal Entry

Transaction Source Document(s) Accounts Debited Accounts Credited
Payment on cheque copy Accounts Payable Bank
account

Sale on sales invoice Accounts Receivable Sales,

account HST Payable
Bank service charge bank debit advice, Bank Charges Bank
bank statement
Cash payment of cheque copy, Telephone Expense, Bank
phone bill telephone bill HST Recoverable
Cash received on daily summaries, Bank Accounts Receivable
account cash receipts list
Purchase of purchase invoice Equipment, Accounts Payable
equipment on HST Recoverable
account
Cash sale cash sales slips, Bank Sales,
POS summaries HST Payable

Exercise 2, p. 215

Source Document Document Transactions Document

Number Number(s)
Bank credit memo 1 Owner withdraws money. 3, 8
Bank debit memo 2 Purchase of equipment on account. 6
Cheque copy 3 Payment on account. 3
Cash sales slip 4 Cash sale. 4
Sales invoice 5 Sale on account. 5
Purchase invoice 6 Cheques received from customers 7
on account.
Cash receipts list 7 Increase bank loan. 1, 8, 9
Owner’s written memo 8 Owner invests additional money in 8
the business.
Bank statement 9 Bank service charge. 2, 9

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CHAPTER 6 REVIEW EXERCISES (continued)

Exercise 3, p. 216
Indicate whether each of the following statements is true or false by entering a T or an F in
the space provided. Explain the reason for each F response in the space provided.

A. Anyone in the business can initiate a business transaction. F

B. Every journal entry is based on a source document. T
C. The only purpose of source documents is to provide the basis for a journal F
entry.
D. A business that sells to its customers on a cash basis does not normally use T
a sales invoice.
E. Journal entries for all cash sales slips are essentially the same. T
F. Sales invoices are used by businesses that make most of their sales on T
account.
G. For every sales invoice, there is a debit to an account receivable. T
H. The transaction log that is produced by a POS terminal is used by an F
accounting clerk to record a debit to Bank and a credit to Sales.
I. Every sales invoice is also a purchase invoice. T
J. The debit entry for every purchase invoice is always the same. F
K. The supporting document for a payment on account is the tear-off portion of F
a cheque.
L. The credit entry for every cheque copy payment is always the same. T
M. Cheques received are considered to be cash received. T
N. The bank has no right to make deductions from the accounts of its F
customers.
O. We debit Bank when we receive a bank debit memo. F
P. The cost principle states that every asset acquired is to be recorded at its T
cost price.
Q. The best objective evidence of a purchase is a purchase invoice received T
from an independent supplier.
R. Only provincial governments are allowed to charge sales taxes. F
S. The purchaser of goods or services is required to make accounting entries F
for provincial sales tax.
T. The HST account is an expense account. F
U. A contra account is used in retail sales tax accounting. F
V. The normal remittance entry for HST is a debit to HST Payable and a F
credit to Bank.

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CHAPTER 6 REVIEW EXERCISES (continued)

Exercise 3, p. 216 (continued)
Explanations for F Responses
A. Only certain people are authorized to initiate business transactions.
C. Source documents are also used for reference purposes.
H. The transaction log contains detailed information about each transaction; the POS Summary is
used for the accounting entry.
J. The account debited depends on what was purchased.
K. The supporting document is the cheque copy.
N. At the time the account is opened, the customer signs a form that allows the bank to make
deductions as necessary.
O. You do the opposite of what the bank does. To you, Bank is an asset but to the bank, your account
is a liability. From the bank’s perspective, a debit memo means a reduction of the money they owe
you. From your perspective, if the bank owes you less money, you must credit your Bank account.
R. Businesses are also allowed to charge sales taxes.
S. It is the responsibility of the seller, by law, to do the accounting for sales tax.
T. The HST account is either a liability if we are referring to the HST Payable account or a contra
liability if we are referring to the HST Recoverable account.
U. A contra account is not used in retail sales tax accounting. It is used in value-added tax
accounting.
V. HST Recoverable is also part of the remittance entry. The amount of the remittance is the amount
of HST Payable minus the amount of HST Recoverable. For example, if HST Payable is $500
(credit balance) and HST Recoverable is $200 (debit balance), the remittance is $300. The remit-
tance entry has two goals: record the cheque and clear off the related data in both HST accounts.
Therefore, the remittance entry debits HST Payable ($500), credits HST Recoverable ($200), and
credits Bank ($300). The debits and credits to the HST accounts are the opposite of their balances,
which brings those balances to zero for the reporting period.

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CHAPTER 6 REVIEW EXERCISES (continued)

Exercise 4, p. 216
A. The SaltShed received an HST refund because the company’s purchases were greater than its
sales in the first month, so HST Recoverable had a greater balance than HST Payable.

B. HST Payable: 8000 × 13% = 1040

HST Recoverable: 1040 + 390 = 1430
HST Payable is $1040 and HST Recoverable is $1430.

C. 13% 1430
5
100% P
1430
P5
0.13

P 5 11 000

Purchases in the first month were $11 000.

D. No, Joshua should not hope to receive a HST refund cheque each time the business files
a return. This would mean his purchases continue to be greater than his sales and his
company is not earning a profit.

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CHAPTER 6 REVIEW EXERCISES (continued)

Comprehensive Exercises
Exercise 5, p. 217

GENERAL JOURNAL PAGE 7

DATE PARTICULARS P.R. DEBIT CREDIT

20–
Nov. 4 A/R—R. Chevrier 3 1 0 75
Fees Earned 2 7 5 –
HST Payable 3 5 75
Sales Invoice No. 571

6 Photo Supplies 2 6 5 –
HST Recoverable 3 4 45
A/P—Black’s Photo 2 9 9 45
Purchase of photo supplies

9 Automobile Expense 1 7 5 –
HST Recoverable 2 2 75
A/P—Jack’s Auto 1 9 7 75
Purchase of gasoline

10 W. Siebert, Drawings 9 2 5 –
Bank 9 2 5 –
Cheque No. 652 for owner’s own use

12 Bank 1 6 3 85
Fees Earned 1 4 5 –
HST Payable 1 8 85
Cash Sales Slip No. 214

15 Bank Charges Expense 3 5 50

Bank 3 5 50
Commercial bank service charges

22 Bank 4 1 2 –
A/R—H. Walker 4 1 2 –
Received on account, Remittance slip No. 312

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CHAPTER 6 REVIEW EXERCISES (continued)

Exercise 5, p. 217 (continued)

GENERAL JOURNAL PAGE 8

DATE PARTICULARS P.R. DEBIT CREDIT

20–
Nov. 23 W. Siebert, Drawings 8 4 75
Photo Supplies 7 5 –
HST Recoverable* 9 75
Owner took supplies for own use and
eliminated the business’s original claim for the
HST paid

25 A/P—Black’s Photo 2 9 9 45
Bank 2 9 9 45
Cheque No. 653 on account

28 Automobile Expense 7 5 0 –
HST Recoverable 9 7 50
A/P—Oakley Motors 8 4 7 50
Body repairs

*Since the photo supplies have been

converted from business to personal use,
the business no longer has the right to claim
HST paid as HST Recoverable.

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CHAPTER 6 REVIEW EXERCISES (continued)

Exercise 6A, p. 218
GENERAL JOURNAL PAGE 12

DATE PARTICULARS P.R. DEBIT CREDIT

20–
Oct. 2 Bank 1 7 2 33
Rental Revenue 1 5 2 50
HST Payable 1 9 83
Cash sales slip No. 409

4 A/R—G. Fairbridge 5 5 0 88
Rental Revenue 4 8 7 50
HST Payable 6 3 38
Sales invoice No. 410

5 Rental Tools and Equipment 3 1 5 –

HST Recoverable 4 0 95
A/P—Vulcan Machinery 3 5 5 95
Hydraulic jack; purchase invoice No. 3062

8 A/P—Fair Supply Company 2 1 5 90

Bank 2 1 5 90
Cheque No. 1475 on account

9 Bank 2 8 8 26
Rental Revenue 2 5 5 10
HST Payable 3 3 16
Cash sales slip No. 411

11 Bank 4 0 2 20
A/R—P. Mathers 4 0 2 20
Received on account; remittance slip No. 182

15 Utilities Expense 1 7 2 –
HST Recoverable 2 2 38
Bank 1 9 4 36
Cheque No. 1476

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CHAPTER 6 REVIEW EXERCISES (continued)

Exercise 6A, p. 218 (continued)

GENERAL JOURNAL PAGE 13

DATE PARTICULARS P.R. DEBIT CREDIT

20–
Oct. 17 Wages Expense 2 5 1 2 –
Bank 2 1 5 2 –
Cheque No. 1477

17 Bank 1 0 1 7 –
Rental Revenue 9 0 0 –
HST Payable 1 1 7 –
Cash sales slip No. 412

18 F. Mazur, Drawings 1 3 5 0 –
Bank 1 3 5 0 –
Cheque No. 1478 for personal use

22 Delivery Expense 2 0 9 –
HST Recoverable 2 7 17
A/P—Husky Repairs 2 3 6 17
Maintenance on the delivery truck

24 Bank Charges Expense 4 2 50

Bank 4 2 50
Debit memo for service charge

29 HST Payable 8 5 2 –
HST Recoverable 3 4 0 –
Bank 5 1 2 –
Cheque No. 1479 to the Receiver General
for GST remittance

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CHAPTER 6 REVIEW EXERCISES (continued)

Exercise 6B, p. 219
GENERAL JOURNAL PAGE 12

DATE PARTICULARS P.R. DEBIT CREDIT

20–
Oct. 2 Bank 1 7 0 81
Rental Revenue 1 5 2 50
GST Payable 7 63
PST Payable 1 0 68
Cash sales slip No. 409

4 A/R—G. Fairbridge 5 4 6 01
Rental Revenue 4 8 7 50
GST Payable 2 4 38
PST Payable 3 4 13
Sales invoice No. 410

5 Rental Tools and Equipment 3 3 7 05

GST Recoverable 1 5 75
A/P—Vulcan Machinery 3 5 2 80
Hydraulic jack; purchase invoice No. 3062

8 A/P—Fair Supply Company 2 1 5 90

Bank 2 1 5 90
Cheque No. 1475 on account

9 Bank 2 8 5 72
Rental Revenue 2 5 5 10
GST Payable 1 2 76
PST Payable 1 7 86
Cash sales slip No. 411

11 Bank 4 0 2 20
A/R—P. Mathers 4 0 2 20
Received on account; remittance slip No. 182

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CHAPTER 6 REVIEW EXERCISES (continued)

Exercise 6B, p. 219 (continued)

GENERAL JOURNAL PAGE 13

DATE PARTICULARS P.R. DEBIT CREDIT

20–
Oct. 15 Utilities Expense 1 7 2 –
GST Recoverable 8 60
Bank 1 8 0 60
Cheque No. 1476

17 Wages Expense 2 5 1 2 –
Bank 2 5 1 2 –
Cheque No. 1477

17 Bank 1 0 0 8 –
Rental Revenue 9 0 0 –
GST Payable 4 5 –
PST Payable 6 3 –
Cash sales slip No. 412

18 F. Mazur, Drawings 1 3 5 0 –
Bank 1 3 5 0 –
Cheque No. 1478 for personal use

22 Delivery Expense 2 0 9 –
GST Recoverable 1 0 45
A/P—Husky Repairs 2 1 9 45
Maintenance on the delivery truck

24 Bank Charges Expense 4 2 50

Bank 4 2 50
Debit memo for service charge

29 GST Payable 3 2 7 69
GST Recoverable 1 3 0 77
Bank 1 9 6 92
Cheque No. 1479 to the Receiver General
for GST remittance

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CHAPTER 6 REVIEW EXERCISES (continued)

Exercise 7A, p. 220
GENERAL JOURNAL PAGE 36

DATE PARTICULARS P.R. DEBIT CREDIT

20–
Mar. 2 A/R—Mountain Distributors 1 9 7 75
Fees Revenue 1 7 5 –
HST Payable 2 2 8 75
Sales invoice No. 192

4 A/R—Old Fort Trading Co. 3 3 9 –

Fees Revenue 3 0 0 –
HST Payable 3 9 –
Sales invoice No. 193

4 Car Expense 5 1 5 –
HST Recoverable 6 6 95
Bank 5 8 1 95
Cheque No. 316 for car repairs

6 Utilities Expense 4 6 5 –
HST Recoverable 6 0 45
Bank 5 2 5 45
Cheque No. 317

10 Equipment 6 7 5 –
HST Recoverable 8 7 75
A/P—C & C Equipment 7 6 2 75
Metal drawing table; purchase invoice
No. 1401

10 Art Supplies 2 8 5 –
GST Recoverable 3 7 05
Bank 3 2 2 05
Cheque No. 318

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CHAPTER 6 REVIEW EXERCISES (continued)

Exercise 7A, p. 220 (continued)

GENERAL JOURNAL PAGE 37

DATE PARTICULARS P.R. DEBIT CREDIT

20–
Mar. 13 C. Ohashi, Drawings 1 3 5 0 –
Bank 1 3 5 0 –
Cheque No. 319 for personal use

14 A/R—Display Design Company 2 8 8 15

Fees Revenue 2 5 5 –
HST Payable 3 3 15
Sales invoice No. 194

14 Bank 1 5 0 –
A/R—Victor Schilling 1 5 0 –
Received on account; remittance slip No. 355

17 A/P—C & C Equipment 7 6 2 75

Bank 7 6 2 75
Cheque No. 320 for purchase invoice No. 1401

19 A/R—Scoville Sales 2 6 5 55
Fees Revenue 2 3 5 –
HST Payable 3 0 55
Sales invoice No. 195

20 Rent Expense 1 6 7 5 –
HST Recoverable 2 1 7 75
Bank 1 8 9 2 75
Cheque No. 321

23 Equipment 2 1 5 –
HST Recoverable 2 7 95
A/P—Loughery’s Limited 2 4 2 95
Drafting and artist’s equipment;
invoice No. 634

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CHAPTER 6 REVIEW EXERCISES (continued)

Exercise 7A, p. 220 (continued)

GENERAL JOURNAL PAGE 38

DATE PARTICULARS P.R. DEBIT CREDIT

20–
Mar. 25 Telephone Expense 1 2 8 50
HST Recoverable 1 6 71
Bank 1 4 5 21
Electronic payment; confirmation No. 56255

27 Car Expense 2 4 7 1 40
HST Recoverable 3 2 1 28
A/P—Roger’s Body Shop 2 7 9 2 68
Invoice No. 3375 for repairs after accident

31 Bank 3 0 0 –
A/R—Old Fort Trading Co. 3 0 0 –
Remittance slip No. 356

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CHAPTER 6 REVIEW EXERCISES (continued)

Exercise 7B, p. 221

GENERAL JOURNAL PAGE 36

DATE PARTICULARS P.R. DEBIT CREDIT

20–
Mar. 2 A/R—Mountain Distributors 1 9 6 –
Fees Revenue 1 7 5 –
GST Payable 8 75
PST Payable 1 2 25
Sales invoice No. 192

4 A/R—Old Fort Trading Co. 3 3 6 –

Fees Revenue 3 0 0 –
GST Payable 1 5 –
PST Payable 2 1 –
Sales invoice No. 193

4 Car Expense 5 1 5 –
GST Recoverable 2 5 75
Bank 5 4 0 75
Cheque No. 316 for car repairs

6 Utilities Expense 4 6 5 –
GST Recoverable 2 3 25
Bank 4 8 8 25
Cheque No. 317

10 Equipment 7 2 2 25
GST Recoverable 3 3 75
A/P—C & C Equipment 7 5 6 –
Metal drawing table; purchase invoice
No. 1401

10 Art Supplies 3 0 4 95
GST Recoverable 1 4 25
Bank 3 1 9 20
Cheque No. 318

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CHAPTER 6 REVIEW EXERCISES (continued)

Exercise 7B, p. 221 (continued)

GENERAL JOURNAL PAGE 37

DATE PARTICULARS P.R. DEBIT CREDIT

20–
Mar. 13 C. Ohashi, Drawings 1 3 5 0 –
Bank 1 3 5 0 –
Cheque No. 319 for personal use

14 A/R—Display Design Company 2 8 5 60

Fees Revenue 2 5 5 –
GST Payable 1 2 75
PST Payable 1 7 85
Sales invoice No. 194

14 Bank 1 5 0 –
A/R—Victor Schilling 1 5 0 –
Received on account; remittance slip No. 355

17 A/P—C & C Equipment 7 5 6 –

Bank 7 5 6 –
Cheque No. 320 for purchase invoice No. 1401

19 A/R—Scoville Sales 2 6 3 20
Fees Revenue 2 3 5 –
GST Payable 1 1 75
PST Payable 1 6 45
Sales invoice No. 195

20 Rent Expense 1 6 7 5 –
GST Recoverable 8 3 75
Bank 1 7 5 8 75
Cheque No. 321

23 Equipment 2 3 0 05
GST Recoverable 1 0 75
A/P—Loughery’s Limited 2 4 0 80
Drafting and artist’s equipment; invoice 634

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CHAPTER 6 REVIEW EXERCISES (continued)

Exercise 7B, p. 221 (continued)

GENERAL JOURNAL PAGE 38

DATE PARTICULARS P.R. DEBIT CREDIT

20–
Mar. 25 Telephone Expense 1 2 8 50
GST Recoverable 6 43
Bank 1 3 4 93
Electronic payment; confirmation No. 56255

27 Car Expense 2 4 7 1 40
GST Recoverable 1 2 3 57
A/P—Roger’s Body Shop 2 5 9 4 97
Invoice No. 3375 for repairs after accident

31 Bank 3 0 0 –
A/R—Old Fort Trading Co. 3 0 0 –
Remittance slip No. 356

Questions for Further Thought, p. 223

1. Three jobs in a secondary school that might carry the right to make purchases could include
the school librarian, department heads, and the principal.
2. A source document is a business paper, such as a cash receipt, that is the original record of
a transaction. It is the source of the information needed to account for the transaction.
3. An example of a transaction which has no source document would be when supplies are
damaged and have to be thrown out.
4. It is true that assets will be understated on the balance sheet if their market value rises,
which will make the balance sheet misleading. However, the cost principle states that assets
are recorded at their cost price at the time of purchase. It is considered acceptable to avoid
stating the market value of long-term assets because they are necessary for the operation of
the business and will not be sold in the short term. To make balance sheets more relevant,
the IFRS allows assets to be stated at their fair market value in some situations.
5. When cash sales slips are spoiled, the word Void should be written on all copies of the cash
sales slips. Then they should be filed in sequence with the unspoiled cash sales slips so there
is a clear record of all the cash sales slips and no gaps in the numbering.

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CHAPTER 6 REVIEW EXERCISES (continued)

Questions for Further Thought, p. 223 (continued)
6. To the vendor who issues it, the invoice is a sales invoice but to the purchaser who receives it,
the invoice is a purchase invoice.
7. The invoice numbers on purchase invoices cannot be used for control purposes by the buyer
because the invoices come from many different companies which all use different numbering
systems. There is no way to put them in numeric order to keep track of them.
8. The person who handles the cash receipts is not normally an employee in the accounting
department who also acts as a control measure to prevent fraud. If one person did both tasks,
it would be easy to steal cheques and falsify the accounting records to cover up the theft.

9. A bank issues a debit memo when it decreases your bank account because, to the bank,
your balance is an account payable since the bank owes you the money you have deposited.
Accounts payable are decreased by debits and increased by credits.
10. A minor point can be conceded that remitting sales tax before it is received from the customer
is unfair because the remitting business is giving up its own cash to the government for a
short time. On balance, however, the amount is insignificant. In addition, each month the
business has temporary use of cash that rightfully belongs to the government. This is because
there is a time lag between when cash sales are made and when they are subsequently
remitted to the government.
11. For the $337.05 amount, the PST was calculated on the amount including GST, $315, not
the original sale amount of $300.
300.00 × 1.05 = 315 then 315.00 × 1.07 = 337.05
For the $336.00 result, both taxes were calculated on the original sale amount of $300 and
then added to it.
300 × 0.07 = 21 and 300 × 0.05 = 15 then 300 + 21 + 15 = 336.00
Prince Edward Island and Quebec use a calculation method where PST (QST in Quebec) is
calculated on the amount including GST.

Cases for Further Thought, p. 223

1. You could verify the cost of the new truck by contacting the company that sold the truck and
requesting a duplicate receipt for the transaction.
2. Fred should record the equipment at the cost price of $18 000 since that is what he paid
for it. This is in accordance with the cost principle. If the business is reporting using IFRS,
an argument can be made for listing the truck at $22 000 since this amount more closely
reflects market value.

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CHAPTER 6 REVIEW EXERCISES (continued)

Cases for Further Thought, p. 223 (continued)
3. A company could earn a profit and still have long-term cash problems if the owner withdrew
more money than the company could afford to give up. Another cause could be that the
company’s management invested more in property or equipment that the company could afford.

4. Colossimo Company ordered the van on March 19 but did not pay for it. The company should
record the transaction in its books on July 31, once it receives and pays for the van.

5. This is not the proper way to account for the value of the vehicle. Sarah should get an
independent assessment of the fair market value of the automobile in writing and use that
as evidence of the transaction.

CASE STUDIES (page 224)

Case 1 Generous to a Fault? (p. 224)

1. In terms of financial results, R.C. has been a good businessperson. A central issue to consider is
whether his successful results have been enhanced by tactics that could be considered unethical.

2. Opinions will vary. Certainly, private businesspeople exchange favours on a regular basis and
do so without criticism. They are merely the perks of doing business. R.C., however, deals with
government departments who operate with public dollars and who are rightfully open to public
scrutiny. Typically, the awarding of government contracts is an open process where fairness is
paramount. R.C.’s favours and gestures can be construed as bribery; those receiving them could
be charged with using their public positions to gain illegal kickbacks and unfair benefits.
3. R.C.’s seems to be less gracious with his employees than he is with government officials.
Perhaps his attitude with employees is somewhat old fashioned. Modern businesses find that
providing employees with an assortment of perks builds loyalty, promotes longevity of service,
and increases productivity.

4. No, R.C’s claim that there are no strings attached to his gifts is not believable. He has become
prosperous because of the government contracts he got in the past, so it is reasonable that he
would expect more contracts in the future in exchange for his gifts. It is also to the government
employees’ advantage to award R.C. more contracts because it will gain them more perks.

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CASE STUDIES (continued)

Case 1 Generous to a Fault? (continued)

5. By extending extreme generosity to government officials for government road repair
contracts, R.C. got more work than his competitors. This allowed him to earn more money
and expand his business until he had the largest company in the province. Now he has a
monopoly on the road repair business, so almost all of the new contracts go to him because
no one else can do the work with the same economies of scale.
6. The company is likely claiming the amounts spent on meals, hockey tickets, and so on as
expenses. These expenses will lower the company’s net income and thus its income tax bill.
In a sense, the government and its taxpayers are subsidizing R.C.’s extravagance. Also,
government officials are gaining financial benefits as a direct result of their employment,
yet these benefits are not being included on their tax returns. Once again, the public purse
suffers as a result.
7. Answers will vary. Students should weigh the advantages and disadvantages of taking the
hockey tickets from R.C., including the possible damage to their professional reputation and
legal charges if they are caught accepting a bribe. However, if most government officials in
the city are receiving R.C.’s gifts, not taking the bribe could also threaten their employment
opportunities.

Case 2: Group Discussion Is a Profit Always a Profit? (p. 225)

1. Marjorie earned a $120 000 profit on the sale of the recreational property purchased in 2008.

2. Profit $120 000

Tax at 20% 24 000
Net Profit $ 96 000
The tax on the profit was $24 000 and the profit after tax was $96 000.

3. Marjorie had $296 000 free cash available as a result of the property transaction ($320 000
less $24 000 tax).
4. The money that Marjorie has available and the cost of the boat are presented in the table
below.
2008 2011
Money available $200 000 $296 000
Cost of boat 200 000 296 000
The table shows clearly that Marjorie is in no better position to buy the boat now than she
was in 2008.

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CASE STUDIES (continued)

Case 2: Group Discussion Is a Profit Always a Profit? (continued)

5. Marjorie is in no better position in 2011 to buy the Tarzan 10 than she was in 2008. The
amount of cash she has on hand is the same as the price of the sailboat in each case. In
terms of purchasing power she is no better off and therefore has not really made a profit.

6. The increase in the value of the property and the boat over time is called inflation.

7. Yes, Marjorie’s book profit could be called a paper profit. After the 20% tax on capital gains
and the rate of inflation are taken into account, she does not have any more purchasing
power than she did in 2008. It only looks like a profit in the books.

CAREER James Robertson/Sole Proprietor,

Robertson Mechanical (page 226)
Discussion (p. 226)
1. James Robertson operates a sole proprietorship. He is a plumber and a gas technician.

2. Advantages of being a sole proprietor include making your own decisions and not having
to share the profits. Disadvantages include working long hours and not having anyone
else to depend on for help.

3. James’s operating expenses could include plumbing supplies such as pipes and hardware,
gasoline, vehicle repair, office supplies, and possibly storage of materials.

4. Even if you are not involved in the detailed accounting of your business, taking a business
course will help you understand how a business is run. You will better understand the rules
and regulations governing businesses and what a bookkeeper or accountant is doing for you.

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