Likewise, the investment item in the cash book, showing a credit of $3,500 to Jack Gibson, Capital account, should be checked and not posted to the credit of his account in the ledger because this item forms a part of the total investment of $8,150 posted to his credit from the Journal entry.
If the student has difficulty in determining the debits and credits of entries of this kind, it may be helpful to set up the data informally first, in the form of a balance sheet. Using this as a guide, he should then make his journal entry, debiting the asset items and crediting the liability and net worth items.
Form 15. Opening Entries on Books
The above entries bring the transaction completely on the books of original entry and show the ledger folios to which the various items are posted. Notice the check in the L. F. column in the Journal opposite “Cash” and in the cash book opposite “Jack Gibson, Capital,” which is inserted to prevent posting the same item twice.
For opening entries full explanation and details, where necessary, should be given in the Journal, covering lease agreements and contracts entered into when commencing business, and other similar data. It should be noted that with opening entries it is customary for the explanation to precede the formal showing of debits and credits, rather than to follow it as in the case of all other journal entries.
Adjusting and Closing Entries.—Other typical entries to be illustrated are those made at the close of a fiscal period: (1) to adjust the books in accordance with certain data that were not obtainable before; (2) to transfer all temporary proprietorship accounts to the summary account, Profit and Loss; and (3) to transfer the net profit, i.e., the balance of the Profit and Loss account, to the proprietor’s personal account, and the balance of this latter account to the proprietor’s capital account.
The debits and credits of the entries necessary to effect the record of the data and transfers mentioned, can be determined as in the operations with ledger accounts previously shown.
The following data relate to Jack Gibson’s business and are given to illustrate the three classes of entries mentioned above: