Teacher Created Materials
July 17, 2015
This week I finally moved on to work with Jared on General Ledger – reports, journals, and everything relating to reconciling among the company’s activities. The first thing I learned was to make general journal entries basing on a general journal detail report and some other reports and emails about TCM’s transactions. A general journal is an entry that records a transaction as a debit or credit, and how it affects the company’s assets, liabilities and owner’s equity.
To assign how transactions are either debit or credit is much harder than doing so in ECB courses at Cornell. We might have learned transactions such as: “Paying a $100,000 debt by check, thus this transaction reduces $100,000 in debit (cash) and reduces $100,000 in credit (debt).” (I hope I’m correct – I took Professor Huan Cai’s Financial Accounting course about a year ago). Yet in a real life company, when we put transactions into debit or credit account, we have to classify the transactions basing on so many accounts. We have many types of expense or income, therefore how we classify them is essential to justify how the company is doing, what types of expense is dominant, from where we are receiving income, etc. Also, we have to be careful when we prepare journal entries; if we put some transactions into the wrong account or if some activities is going differently in the company, we have to “re-class” the entries, which is changing a transaction from one account to another.
I also learned a lot about bank reconciliation. Since we have an account in the bank, we have to reconcile what we have in the bank with what we have in our database. Mostly what we have in our bank is received through credit card transactions, web-orders, checks, and wire transfers. And what we have in our database – our own “bank”, is recorded by every transaction, every check, and every credit card or transfer that we receive. Reconciling what we have recorded and what we actually have is crucial in terms of not losing our money, our customers’ money, or the bank’s money. So far, I have been reconciling some accounts for bank reconciliation, and it’s not as simple as I thought. Sometimes it’s really straightforward, yet some transactions are harder to reconcile. For example:
- Some checks might be deposited into the bank but not into our system. The system I’m talking about is mostly inventory related, and from time to time there are checks that are not related to our inventory. So that means the amount we have in the bank is higher, thus we have to keep track of those checks for month-end reconciliation.
- Some transactions might be recorded as two transactions in our systems, but just one in the bank or vice versa (because of…reasons). So it’s important to make sure which amount belongs to which transactions.
- Some transactions we have already entered into our data system but not yet recorded into the bank account, which most likely happen on the last day of the month. So we have to count them for the next month.
…and so on. Again, reconciling is a lengthy process, yet an essential one.
Through this week working with Jared, I’m able to see the Accounting Cycle clearer: where Sheila’s invoices and checks go to, where Vanessa’s invoices and checks go to, how we can use daily reports and reconciliations to prepare for month-end reconciliation. It all makes more sense!
Tom is an Economics & Business major from Hanoi, Vietnam.