GRADE YOUR TEACHER

Accounting with QuickBooks Online

Chapter 3 Using Journal Entries to Enter Business Transactions

 Learning Objectives

After you have completed this chapter, you will be able to do the following:

  1. Prepare journal entries to reflect checkbook entries
  2. Prepare journal entries to record purchases on account
  3. Prepare journal entries to record sales on account
  4. Prepare a trial balance
  5. Prepare an income statement
  6. Prepare a balance sheet

 Overview

You began this process in Chapter 1 when you created your account and provided basic information about your company. In Chapter 2 you modified company settings and the chart of accounts. Remember there is no Save File or Save File As command in QuickBooks Online. Everything is saved for you.

The focus of this chapter is to record your business transactions for June into QuickBooks Online. The source of your information comes from the company’s checkbook and notes taken for sales and purchases on account. The dates for all transactions in this text are set for June, July, and August of 2018. However, you can use any year you’d like. Just remember that the figures in this text will all show 2018.

It is important to note that this QuickBooks Online supplement assumes you have read and understood the accounting concepts and related journal entries in the College Accounting text. This supplement will explain QuickBooks Online steps and processes but will not reiterate how to record specific business transactions.

Once again you should remember that the figures and steps provided and described in this supplement were accurate on the day they were captured. Intuit may have changed the location, the description, or the process for recording certain business transactions and thus at any point in time the figures may not match your screen or the steps described may not match those described here. Changes should not be significant but the author does not control or have any influence over QuickBooks Online developers.

Journal Entries

Business transactions can be recorded into QuickBooks Online in many different ways. One way is to use journal entries for all transactions. The other is to use source documents like sales invoices, purchase invoices, bills, checks, and deposit slips. For this chapter, you’ve decided to enter all transactions as journal entries. You’ll explore alternative ways in future chapters. It is important to note that all journal entries which affect accounts receivable or accounts payable must specify a specific customer or vendor, respectively. For example, Magnolia purchased spa equipment, described below, from a specific vendor (Spa Supplies, Inc.). Thus the purchase and subsequent payment journal entries must be designated as related to that vendor.

To access QuickBooks Online journal entries:

  1. Type https://qbo.intuit.com/ into your web browser.
  2. Type your User ID and Password as you did in Chapters 1 and 2.
  3. Click the Create + icon from the Home page and then click Journal Entry
  4. After clicking Journal Entry, a blank journal entry form labeled Journal Entry #1 should appear
  5. Click the X to close this window

Recording Checkbook Activities

The checkbook is a good place to begin recording business events. A replica of Magnolia’s June 2018 checkbook is provided below, reflecting both deposits and checks. There are 18 business events which need to be recorded so you’ll create journal entry 1 though journal entry 18 below. The first entry will be demonstrated below and the following 17 entries are up to you.

The first entry in the checkbook is a deposit of $15,000.00 from Richard Lewis as his capital contribution. This transaction should be recorded as a debit to account 111 Cash and credit to account 311 Lewis, Capital for 15,000.00.

To record journal entries to reflect checkbook activities:

  1. Refer to the checkbook entries shown above. Click the Create + icon from the Home page and then click Journal Entry as you did earlier.
  2. Type 6/1/18 in the Journal date text box.
  3. Accept 1 as the Journal no.
  4. Click in the Account column of row 1.
  5. Select 111 Cash from the drop-down list
  6. Type 15000 in the Debit column of row #1.
  7. Type Owner invested cash in the business in the Description column of row 1.
  8. Type Richard Lewis in the Name column of row 1.
  9. Click + Add Richard Lewis when prompted.
  10. Select Vendor as the type and then click Save. (Note: while a vendor is not an owner it is the best option available.)
  11. Click in the Account column of row #2.
  12. Select 311 Lewis, Capital from the drop-down list.
  13. Press [Tab] twice to move the active cell to row #2 of the Credits column. 15,000.00 should appear in row #2 of the Credits column.
  14. Type Richard Lewis in the Name column of row 2.
  15. Click Save and new. (If a Closing date warning appears click Yes to save since you are aware that you are entering data before the company’s fiscal year-end.)
  16. Refer to the checkbook entries above. The next checkbook entry requires you to record a journal entry to increase prepaid insurance and decrease cash. Follow the steps you completed above, labeling the entry as Journal no. 2 AND being sure to include Liberty Insurance as a new vendor.
  17. Refer to the checkbook entries above. The third checkbook entry requires you to record the purchase of equipment for cash and accounts payable. Once again, follow the steps you completed above, labeling the entry as Journal no. 3. Click Save and Close after you complete this entry.
  18. Before you continue you should review the transactions recorded so far. You can accomplish that by creating a Transaction List by Date report. Click Reports from the Navigation bar.
  19. Click Accountant Reports
  20. Click TRANSACTION LIST BY DATE
  21. Type 6/1/18 into the From: text box and then type 6/30/18 into the To: text box.
  22. Click the Run Report button to view the report shown in Figure 3.7.
  23. Click Save Customizations to save this report for future use.
  24. Type June 2018 at the end of the suggested name for this report so that it’s revised name is Transaction List by Date June 2018.
  25. Click in the checkbox Add this report to a group and then select the down-arrow in the Start Typing text box
  26. Click ADD NEW.
  27. Type your name in the Name text box (Student Name is used here for illustration. Use your name instead.) and then click Save.
  28. Click in the checkbox Share this report with all company users
  29. Click ALL
  30. Click on Journal Entry 2 from the Transaction List by Date report to view the journal entry you should have recorded based on the checkbook entry dated 6/3/18
  31. Continue the process of recording all of the checkbook entries from above using the journal entry numbers provided. Once you’ve entered the last entry click Save and close

To test your accuracy, you should create a trial balance from QuickBooks Online and compare it to the trial balance below. Investigate any differences and fix them by correcting the errors, if any, that you made in the journal entries.

To create a trial balance and review journal entries:

  1. Click Reports from the Navigation bar.
  2. Click Account Reports
  3. Click Trial Balance
  4. Type 6/1/18 in the From: text box and then type 6/30/18 in the To: text box and then click Run Report.
  5. Click Save Customizations to save this report for future use.
  6. Type June 2018 like you did previously and save this report in your Student Name Group.
  7. Compare your trial balance to the solution provided below

    Download (TIFF, 18KB)

  8. If you discover an error, click the numerical value of the error to reveal a Transaction Report.
  9. Click the line of the transaction report containing the journal entry causing the error to reveal the journal entry causing the problem.
  10. Fix the problem, save the entry, and compare the trial balances again.
  11. Close the Trial Balance report

Other Activities Not Affecting the Checkbook

Magnolia had other business events that took place in June that had no effect on the checkbook. These included investment of equipment by the owner, purchases on account, and sales on account. You are to record these transactions as journal entries.

Investment of Equipment

  • On 6/1/18 the owner of the company, Lewis, contributed $3,158 of his personal spa equipment to the company. Use journal entry 19 to record this business event.

Purchases on Account

  • On 6/3/18 Magnolia Spas bought $492 of spa supplies on account from Spa Supplies, Inc., receiving their invoice no. 804. Use journal entry 20 to record this business event.
  • On 6/5/18 Magnolia Spas bought $318 of office equipment on account from Office Equipment Company, receiving their invoice no. 3415. Use journal entry 21 to record this business event.
  • On 6/5/18 Magnolia Spas bought $397 of advertising pamphlets on account from Adco, Inc., receiving their invoice no. 512. Use journal entry 22 to record this business event.
  • On 6/5/18 Magnolia Spas bought an additional $832 of office equipment on account from Office Equipment Company, receiving their invoice no. 3445. Use journal entry 23 to record this business event.
  • On 6/5/18 Magnolia Spas bought $120 of office supplies on account from Office Staples, receiving their invoice no. 522. Use journal entry 24 to record this business event.

Sales on Account

  • On 6/7/18 Magnolia Spas provided $325 of services on account to Jill Anson. Use journal entry 25 to record this business event.
  • On 6/14/18 Magnolia Spas provided $486 of services on account to Jack Morgan. Use journal entry 26 to record this business event.
  • On 6/21/18 Magnolia Spas provided $344 of services on account to Tory Ligman. Use journal entry 27 to record this business event.
  • On 6/30/18 Magnolia Spas provided $109 of services on account to Judy Wilcox. Use journal entry 28 to record this business event.

To test your accuracy, you should open the trial balance you customized before and compare it to the trial balance below. Investigate any differences and fix them by correcting the errors, if any, that you made in the journal entries.

To open your saved trial balance and review journal entries:

  1. Click Reports from the Navigation bar.
  2. Click My Custom Reports.
  3. Under your name click Trial Balance June 2018.
  4. Compare your trial balance to the solution provided below

    Download (TIFF, 21KB)

  5. If you discover an error, click the numerical value of the error to reveal a Transaction Report.
  6. Click the line of the transaction report containing the journal entry causing the error to reveal the journal entry causing the problem.Fix the problem, save the entry and compare the trial balances again.
  7. Close the Trial Balance report

Prepare Financial Statements

Once you’ve validated the trial balance it’s time to create the financial statements: income statement and balance sheet. These are easily prepared by using the Reports section. However, in QuickBooks Online, the income statement is known as the Profit and Loss report so you’ll need to search for that name since you’ll never find an income statement. You decide to create and save these for future use like you did for the trial balance.

To prepare an income statement:

  1. Click Reports from the Navigation bar.
  2. Click ACCOUNTANT REPORTS
  3. Click Profit and Loss
  4. Type 6/1/18 in the From: text box and then type 6/30/18 in the To: text box.
  5. Click the Run Report button to view the report
  6. Click the Customize button and then click the Header/Footer tab on the left.
  7. Change the report title text box from Profit and Loss to Income Statement
  8. Click Run Report to view the modified report
  9. Click Save Customizations and type June 2018 at the end of the name of the custom report so that it reads Income Statement June 2018.
  10. Place this report into a group with your name and share the report as you’ve done before. Then click OK.

To prepare a balance sheet:

  1. Click Reports from the Navigation bar.
  2. Click Accountants Reports.
  3. Click BALANCE SHEET
  4. Type 6/1/18 in the From: text box and then type 6/30/18 in the To: text box.
  5. Click the Run Report button to view the report
  6. Click Save Customizations and type June 2018 at the end of the name of the custom report so that it reads Balance Sheet June 2018.
  7. Place this report into a group with your name and share the report as you’ve done before. Then click OK.

Review It with QuickBooks Online

Answer the following in a Google Doc shared with me:

  1. If an error is discovered on the trial balance, it can be corrected with all of the following, except:
    1. Click the numerical value of the error to reveal a Transaction Report
    2. Enter the transaction date of the error
    3. Click the line of the transaction report to reveal the desired journal entry
    4. Correct the error and save the entry
  2. In QuickBooks Online, the income statement is known as:
    1. Report of Financial Position Statement
    2. Operating Income Statement
    3. Profit and Loss Report
    4. None of the above
  3. In QuickBooks Online, the financial reports should be completed in the following order:
    1. Profit and Loss, Trial Balance, Balance Sheet
    2. Trial Balance, Profit and Loss, Balance Sheet
    3. Trial Balance, Balance Sheet, Profit and Loss
    4. In cloud-based applications like QuickBooks Online, financial reports can be completed in any order

End Note

You have now recorded business events based on information from your checkbook, and notes from additional owner contributions, purchases on account, and sales on account. Further, you’ve created a trial balance, income statement, and balance sheet. Next in Chapter 4, you will record adjusting entries and create an adjusted trial balance, income statement, and balance sheet.