Journalizing: Recording Financial Transactions as They Occur
Definition of Journalizing
Journalizing is the process of recording financial transactions in the accounting journal as they occur. Each transaction must be properly documented, including:
The date of the transaction.
A description of the transaction.
The accounts affected (debits and credits).
The amount for each account.
Importance of Journalizing in Condominium Management
Ensures transactions are recorded in chronological order, maintaining an audit trail.
Helps comply with Alberta’s financial reporting requirements for condominium corporations.
Prevents errors and financial misstatements in the corporation’s records.
Example: A condominium corporation receives $10,000 in condominium fees from owners. The journal entry would be:
Journal Entry:
Debit: Bank Account $10,000 (increase in cash)
Credit: Condominium Fee Revenue $10,000 (increase in income)
Posting: Transferring Journal Entries to the Correct Ledger Accounts
Definition of Posting
Posting is the process of transferring journalized transactions to the appropriate accounts in the general ledger. This step ensures financial records are organized by account category rather than by transaction date.
Why Posting is Important
Ensures that each financial transaction is reflected in the correct account.
Helps in financial reporting and preparing accurate financial statements.
Allows for easy identification of errors when comparing account balances.
Example: After journalizing a $500 payment for landscaping services, the transaction is posted to:
Landscaping Expense Account (Debited: $500)
Bank Account (Credited: $500)
Trial Balancing: Ensuring Accounts Are Balanced and Error-Free
Definition of Trial Balancing
A trial balance is a report that lists the balances of all accounts at a given point in time. It is used to check whether total debits equal total credits, ensuring the financial records are balanced.
Steps in Preparing a Trial Balance
List all account balances from the general ledger.
Separate debits and credits into two columns.
Verify that total debits equal total credits.
Why Trial Balancing is Important
Helps identify errors before preparing financial statements.
Ensures compliance with Alberta condominium financial reporting laws.
Provides an accurate snapshot of the corporation’s financial position.
If the trial balance does not balance, errors such as missing transactions, incorrect postings, or duplicate entries must be investigated and corrected.
The Role of Accrual Accounting Under Generally Accepted Accounting Principles (GAAP)
Accrual vs. Cash Accounting
Under GAAP, condominium corporations in Alberta must use the accrual accounting method instead of cash accounting.
Accrual Accounting: Recognizes revenues and expenses when they are incurred, regardless of when the cash is received or paid.
Cash Accounting: Records transactions only when cash is exchanged.
Legal Requirement for Accrual Accounting
Accrual accounting ensures that financial statements:
Accurately reflect financial obligations of the condominium corporation.
Provide a complete picture of the corporation’s financial health.
Allow for better budgeting and long-term financial planning.
Example: If a condominium corporation receives an invoice for $2,000 in January for services completed in December, the expense must be recorded in December, even if payment occurs in January.
