Transcript Analyzing Transactions The T Account Title The T account has a title. 2-2 1-2 The T Account Title Debit The left side of the account is called the debit side. 2-3 1-3

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Analyzing Transactions
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The T Account
Title
The T account has
a title.
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The T Account
Title
Debit
The left side of
the account is
called the debit
side.
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The T Account
Title
Debit
Credit
The right side of
the account is
called the credit
side.
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Chart of Accounts
A group of accounts
for a business entity
is called a ledger.
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Chart of Accounts
A list of the accounts
in a ledger is called a
chart of accounts.
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Chart of Accounts
Assets are resources owned
by the business entity.
•
•
•
•
•
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Cash
Supplies
Accounts receivable
Prepaid expenses
Buildings
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Chart of Accounts
Liabilities are debts owed to
outsiders (creditors).
• Accounts payable
• Notes payable
• Wages payable
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Chart of Accounts
Stockholders’ equity is the
stockholders’ right to the
assets of the business. A
dividends account represents
distribution of earnings to
stockholders.
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Chart of Accounts
Revenues are increases in
owner’s equity as a result
of selling services or
products to customers.
• Fees earned
• Commission revenue
• Rent revenue
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Chart of Accounts
The using up of assets or
consuming services in the
process of generating revenues
results in expenses.
• Wages expense
• Rent expense
• Miscellaneous expense
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Exhibit 3
Rules of Debit and Credit, Normal
Balances of Accounts
(continued)
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Exhibit 3
Rules of Debit and Credit, Normal
Balances of Accounts
Increase
(Normal Bal.) Decreases
Balance sheet accounts:
Asset
Liability
Stockholders’ Equity:
Capital Stock
Dividends
Income statement accounts:
Revenue
Expense
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Debit
Credit
Credit
Debit
Credit
Debit
Debit
Credit
Credit
Debit
Debit
Credit
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Example Exercise 2-1
Rules of Debit and Credit and Normal Balances
State for each account whether it is likely to
have (a) debit entries only, (b) credit entries only,
or (c) both debit and credit entries. Also, indicate
the normal balance.
1.
2.
3.
4.
5.
6.
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Dividends
Accounts Payable
Cash
Fees Earned
Supplies
Utilities Expense
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Journalizing
A transaction is initially entered
in a record called a journal. The
process of recording a
transaction in the journal is
called journalizing.
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Transaction A
On November 1, Chris Clark deposited
$25,000 in a bank account in the name
of NetSolutions in exchange for capital
stock.
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Journalizing
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The effect of this entry is shown in
the accounts of NetSolutions as
follows:
Cash
Nov. 1 25,000
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Capital Stock
Nov. 1
25,000
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Transaction B
On November 5, NetSolutions bought
land for $20,000, paying cash.
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Transaction C
On November 10, NetSolutions bought
supplies on account for $1,350.
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Transaction D
On November 18, NetSolutions received
fees of $7,500 from customers for services
rendered.
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Transaction E
Throughout the month, NetSolutions
incurred the following expenses: wages,
$2,125; rent, $800; utilities, $450; and
miscellaneous, $275.
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Transaction F
On November 30, NetSolutions paid
creditors on account, $950.
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Transaction G
Chris Clark determined that the cost of
supplies on hand on November 30 was
$550.
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Transaction H
On November 30, NetSolutions paid
$2,000 of dividends to stockholders.
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Example Exercise 2-2
Journal Entry for Asset Purchase
Prepare a journal entry for the purchase of a truck
on June 3 for $42,500, paying $8,500 cash and the
remainder on account.
Follow My Example 2-2
June 3 Truck……………………….. 42,500
Cash…………………….
8,500
Accounts Payable…….
34,000
For Practice: PE 2-2A, PE 2-2B
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Posting Journal Entries
to Accounts
The process of transferring the
debits and credits from the
journal entries to the accounts
is called posting.
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Dec. 1 NetSolutions paid a premium of
$2,400 for an insurance policy
for liability, theft and fire. The
policy covers a one-year period.
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Dec. 1 NetSolutions paid rent for December,
$800. The company from which
NetSolutions is renting its store space
now requires the payment of rent on the
first of each month, rather than at the end
of the month.
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Dec. 1 NetSolutions received an offer from a
local retailer to rent the land purchased
on November 5. The retailer plans to
use the land as a parking lot for its
employees and customers.
NetSolutions agreed to rent the land to
the retailer for three months, with the
rent payable in advance.
(continued)
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Dec. 1 NetSolutions receives $360 for three
month’s rent for use of its land
beginning December 1.
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Dec. 4 NetSolutions purchased office
equipment on account from Executive
Supply Co. for $1,800.
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Dec. 6 NetSolutions paid $180 for a newspaper
advertisement.
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Dec. 11 NetSolutions paid creditors $400.
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Dec. 13 NetSolutions paid a receptionist and
part-time assistant $950 for two weeks’
wages.
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Dec. 16 NetSolutions received $3,100 from
fees earned for the first half of
December.
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Dec. 20 NetSolutions paid $900 to Executive
Supply Co. on the $1,800 debt owed
from the December 4 transaction.
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Dec. 21 NetSolutions received $650 from
customers in payment of their accounts.
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Dec. 23 NetSolutions paid $1,450 for supplies.
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Dec. 27 NetSolutions paid the receptionist and
part-time assistant $1,200 for two weeks’
wages.
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Dec. 31 NetSolutions paid its $310 telephone bill
for the month.
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Dec. 31 NetSolutions paid $225 for electric usage
for the month.
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Dec. 31 NetSolutions received $2,870 from fees
earned for the second half of December.
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Dec. 31 NetSolutions earned $1,120 on account
for the second half of December.
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Dec. 31 NetSolutions paid $2,000 of dividends to
stockholders.
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Trial Balance
The equality of debits and
credits in the ledger should be
proven at the end of each
accounting period by
preparing a trial balance.
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