Accounting and Finance Foundations

Unit 6

Accounting and Finance Foundations Unit 6: Journalizing 486

Journalizing

Chapter 6

Lesson 17.1 Correcting Entries

At the end of each accounting period—whether it be a month, a quarter, or a year—accountants devote

time to checking their work, just as you might check a math assignment before turning it in. That’s because

even the most talented accountant or most expensive accounting software can make mistakes. Numbers

sometimes get transposed—or switched—when transactions are journalized. Transactions can be entered

twice by accident. And, sometimes, the wrong amount is simply entered for a transaction.

Accountants analyze and review their work—the debits and credits within the general ledger—by preparing

a trial balance. The goal of preparing the trial balance is to balance all of the debits and credits within the

general ledger. If you find that the debits and credits are not equal, then there may be an error in the ledger

somewhere. And, when you find that error, you need to prepare a voucher.

What is a voucher? It’s basically a summary of a particular transaction. Accountants use vouchers to input

correcting and adjusting journal entries into the general ledger. The voucher details the accounts in the

chart of accounts that are affected, describes the correction or adjustment, and includes documentation

showing that the correction or adjustment is necessary. (Most accounting software applications include a

voucher “template” that you can use to standardize your vouchers.)

Let’s assume that you are responsible for closing Mrs. King’s Interiors’ accounting records for the calendar

year. While doing so, you discovered that a transaction was journalized incorrectly. Apparently, according to

the most recent rent statement, the rent increased by $50 during December. And, in fact, the business paid

the full $550—the increased amount. But, the general ledger shows that only $500 was paid. So, you need

to create a correcting entry for December’s rent payment.

To create a correcting journal entry for the business’s December rent payment, you should:

1. Use a journal voucher template. By using the same voucher template every time and simply updat-
   ing the necessary information, the accounting records for different correcting and adjusting will be
   consistent.


2. Select a journal entry number. Many systems generate a journal entry number for you based on
   what input screen you are in. If you have to create the correcting entry manually, though, just make
   sure that you always follow the same process for every journal entry number that you create—because
   of the consistency principle. Journal entry numbers should be in chronological order and distinctly
   different from the chart of account numbers. Since this is Mrs. King’s Interiors Design’s first accounting
   period and first journal voucher, we will start with JE1 for the first journal entry number.


3. Input information into the voucher. Input the necessary information for the correcting journal entry,
   including the date that the rent was paid, the chart of account numbers that will need to be corrected
   and/or updated, the debit and credit information, and a brief description of what the journal voucher
   is changing in the general ledger.

Student Guide

Chapter 17