Name: ________________________________
ACCOUNTING I
Chapter 11 Reading Guide
11-1 ACCOUNTING FOR PURCHASES TRANSACTIONS USING A GENERAL JOURNAL
Please answer the following questions as you read Chapter 11, pages 318-343.
1. A journal with two amount columns in which all kinds of entries can be recorded is called a general journal. If a
company is using special journals like the Sales Journal and the Cash Payments Journal, why is a general journal
necessary?
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2. When store supplies are bought on account ,a memorandum noting that the purchase is for store supplies and not
purchases is attached to the vendor’s invoice. Which journal is used to journalize this transaction? How many
journal lines are used? What does the diagonal line in the Post. Ref. column indicate?
 This transaction is journalized in the General Journal.
 Two lines are used
 A diagonal line that the single credit amount is posted to the general ledger account and to the accounts
payable ledger account too.
3. How does a purchases return differ from a purchases allowance?
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4. A debit memorandum is the source document prepared by the customer showing the price deduction taken by the
customer for a return or an allowance. Why is it called a debit memorandum?
 It is called a debit memorandum because the customer records the amount as a debit to the vendor’s account.
5. What contra account is credited when a purchases return or a purchases allowance is made? What is the normal
balance of this account?
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6. What is the advantage of recording returns and allowances in the Purchases, Returns, and Allowances account?
 Doing so allows the business to track the amount of purchases returns and allowances in a fiscal period.
7. Which journal are purchases returns and allowances transaction recorded in?
 General Journal
8. When posting transactions from a General Journal, an entry in the general journal that affects Accounts Payable,
also affects another account. Which account and which ledger is involved?
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9. When posting from the general ledger, what is the last step in the posting process?
 Write the vendor number in the Post. Ref. column of the general journal.
10. What does the diagonal line in the Post. Ref. column of the general journal allow for?
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11. In a manual accounting system, general journal transactions may be posted immediately, at the end of the day, or
less frequently. What does how often posting is done depend on?
 The frequency of posting depends upon the number and types of transactions.
11-2 RECORDING SALES TRANSACTIONS USING A GENERAL JOURNAL
12. Credit allowed to a customer for the sales price of returned merchandise, resulting in a decrease in the accounts
receivable of the merchandising business is called a sales return. How does this differ from a sales allowance?

13. What is the source document for a sales, returns, and allowance transaction? Why is it called this?
 Credit memorandum
 It is called a credit memorandum because the vendor credits the customer’s account, reducing the amount
owed to the vendor.
14. The Sales Returns and Allowances account is a contra account. What is its normal balance side and which account
is it a contra account to?
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15. How does the contra account, Sales Returns and Allowances help management?
 This contra account enables management to quickly learn if the percent of sales returns and allowances to
sales is greater than expected.
16. When you are journalizing a sales, returns, and allowance, what four accounts are typically affected and how
(debit or credit)? What will the source document be?
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17. When a correcting entry is journalized in the general journal to correct a sale on account that was recorded to
the wrong customer in the sales journal, why is a diagonal line not needed in the Post. Ref. column? Does a
correction of a transaction posted to the wrong customer account results in a change to an accounts receivable
or accounts payable account?
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It is not needed to separate the references to the general ledger and subsidiary ledger account because the
correcting entry does not affect a general ledger account
Accounts Receivable
11-3 ACCOUNTING FOR THE DECLARATION AND PAYMENT OF A DIVIDEND
18. In which major chart of accounts division are the owners’ equity accounts for a corporation listed?
 Stockholders’ Equity
19. Which Stockholders’ Equity account reflects the investment of all stockholders?
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20. Net income increases a company’s total stockholder’s equity. Retained Earnings is an amount earned by a
corporation and not yet distributed to its stockholders. What is the Retained Earnings Account used to record?
 It is used to record a corporation’s earnings.
21. What are dividends? Which account is this temporary account similar to, and what is the Dividends account
normal balance? At the end of the fiscal period, which account is the Dividend account closed to?
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22. A group of persons elected by the stockholders to govern a corporation. Dividends are normally declared on one
day by the board of directors when they declare a dividend, and then they are paid on another day. Which two
accounts are affected, and how, when a dividend is declared?
 The Dividend account is debited and Dividends Payable is credited.
23. What is the formula for calculating the total dividend?
 Number of shares outstanding multiplied by the dividend per share
24. When it is time to pay declared dividends, which two accounts are affected, and how?
 The Dividends Payable account is debited and Cash is credited.