Transcript Document 7230261

Financial
Accounting,
Seventh Edition
Chapter
2
The
Recording
Process
Slide
2-1
The Account
An account is a
record of
increases and
decreases in a
specific asset,
liability, equity,
revenue, or
expense item.
Slide
2-2
The general
ledger is a record
containing all
accounts used by
the company.
The Accounting Equation
Assets
+
Owner’s
Capital
Slide
2-3
=
Liabilities
–
Dividends
+
+
Revenues
Equity
–
Expenses
Knowledge Check # 1:
An individual person starting a business made
an investment of a building, which is valued at
$300,000 with an $180,000 outstanding
mortgage payable. The effect of this
transaction on the accounting equation of the
business would be to:
A.
B.
C.
D.
Slide
2-4
Increase
Increase
Increase
Increase
assets by $120,000.
assets by $180,000.
stockholders’ equity by $120,000.
stockholders’ equity by $300,000.
The Chart of Accounts
The ledger is a collection
information system. A
diversity of operations
of accounts
of all accounts for an
company’s size and
affect the number
needed.
The chart of accounts is a list of all accounts and
includes an identifying number for each account.
Account Number
101
106
126
128
167
201
236
307
Slide
2-5
Account Name
Cash
Accounts receivable
Supplies
Prepaid insurance
Equipment
Accounting payable
Unearned revenue
Common stock
Accounting Number
319
403
406
622
637
640
652
690
Accounting Name
Dividends
Revenues
Rental revenue
Salaries expense
Insurance expense
Rent expense
Supplies expense
Utilities expense
Debits and Credits
Remember:
Debits are
simply
entries on
the left.
Slide
2-6
Credits
are simply
entries on
the right.
Rule of Debits and Credits
Assets
Expenses
Dividends
DR
(+)
CR
(-)
Debit is an increase.
Credit is a decrease.
Slide
2-7
Liabilities
Revenues
Owners’ Equity
DR
(-)
CR
(+)
Debit is a decrease.
Credit is an increase.
Basic Accounting Equation
Assets
=
ASSETS
Debit
+
Slide
2-8
Credit
-
Liabilities
LIABILITIES
Debit
-
Credit
+
+
Equity
EQUITIES
Debit
-
Credit
+
Double-Entry bookkeeping
Equity
Capital Stock
_
Dividends
+
Revenues
_
Expenses
Capital Stock
Dividends
Revenues
Expenses
Debit Credit
Debit Credit
Debit Credit
Debit Credit
-
Slide
2-9
+
+
-
-
+
+
-
Rule of Debits and Credits
Double-entry accounting system
Each transaction must affect two or more
accounts to keep the basic accounting equation
in balance.
Recording done by debiting at least one account
and crediting another.
TOTAL DEBITS must always equal TOTAL
CREDITS.
Slide
2-10
Determining Account Balances
Name of Account
An account’s
balance is usually
on the side that
increases the
account. It is
referred to as the
“Normal Balance.”
Debit
Credit
Accounts with
typical debit
balances are?
Accounts with
typical credit
balances are?
Expenses
Assets
Dividends
Owners’ Equity
Liabilities
Revenues
Remember
the mnemonic memory device, DEAD COLR
Slide
2-11
Normal
Balance
Debit
Expense
Debit / Dr.
Credit / Cr.
Normal
Balance
Credit
Owners’ Equity
Debit / Dr.
Normal Balance
Normal Balance
Chapter
3-27
Chapter
3-25
Assets
Debit / Dr.
Liabilities
Credit / Cr.
Debit / Dr.
Normal Balance
Chapter
3-24
Revenue
Dividends
Debit / Dr.
Normal Balance
Chapter
3-23
Credit / Cr.
Normal Balance
Chapter
3-23
Slide
2-12
Credit / Cr.
Debit / Dr.
Credit / Cr.
Debits
and
Credits
Summary
Credit / Cr.
Normal Balance
Chapter
3-26
Debits and Credits
A T-account represents a ledger account and is
a tool used to understand the effects of one
or more transactions.
T- Account
(Left side)
(Right side)
Debit
Credit
“Friends don’t let friends do Accounting without t-accounts”
Slide
2-13
Debits and Credits
If Debits are greater than Credits, the account
will have a debit balance.
Account Name
Debit / Dr.
Credit / Cr.
Transaction #1
$8,000
$7,000
Transaction #3
5,000
Balance
Slide
2-14
Transaction #2
Debits and Credits
If Credits are greater than Debits, the account
will have a credit balance.
Account Name
Debit / Dr.
Transaction #2
Balance
Slide
2-15
$4,000
Credit / Cr.
$6,000
Transaction #1
3,000
Transaction #3
Knowledge Check # 2:
Which of the following accounts normally
has a credit balance?
1.
2.
3.
4.
Slide
2-16
Accounts Receivable.
Dividends.
Rent Expense
Notes Payable.
Journalizing and Posting Transactions
= Liabilities + Equity
Assets
T- Account
(Left side)
(Right side)
Debit
Credit
Step 1: Analyze
transactions and source
documents.
ACCOUNT NAME:
Date
GENERAL JOURNAL
ACCOUNT No.
Description
PR
Debit
Credit
Balance
Step 4: Post entry to ledger
Slide
2-17
Step 2: Apply doubleentry accounting
Date
Description
Page
Post.
Ref.
Debit
123
Credit
Step 3: Record journal entry
Journalizing Transactions
(using Double entry Bookkeeping)
Transaction
Date
Titles of
Affected Accounts
GENERAL JOURNAL
Date
Description
2012
Sep. 1 Travel Expense
Cash
Payment for Plane fare
Slide
2-18
Transaction
explanation
Page 1
Debit
Credit
300
300
 Dollar amount of
debits and credits
Analyzing Transactions (1)
1. On December 1, 2011, Scott invests
$10,000 cash to start a management
consulting business (Scott Company).
Double entry:
Posting:
Slide
2-19
Analyzing Transactions (2)
2. Scott Company purchased office
supplies paying $1,000 cash.
Double entry:
Posting:
Slide
2-20
Analyzing Transactions (3)
3. Scott Company purchased Office
Supplies of $600 and Computer
Equipment of $3,000 on account.
Double entry:
Posting:
Slide
2-21
Analyzing Transactions (4)
4. Scott Company borrowed $4,000 from
Bank of Maryland.
Double entry:
Posting:
Slide
2-22
Analyzing Transactions (5)
5. During the month of December 2011 , Scott
Company provided consulting services for
$3,500. The company received cash of $1,000,
and billed the balance $2,500 to the customers.
Double entry:
Posting:
Slide
2-23
Analyzing Transactions (6)
6. During the month of December 2011 , Scott
Company paid cash of $800 for Rent, and
$1,200 for Salaries to its only employee.
Double entry:
Posting:
Slide
2-24
Analyzing Transactions (7)
7. During the month of December 2011 , Scott
Company received a bill for $300 from the
electric company, but decides to pay the bill at
a later date.
Double entry:
Posting:
Slide
2-25
Analyzing Transactions (8)
8. Scott Company received a check for
$1,500 from a customer who was billed
earlier.
Double entry:
Posting:
Slide
2-26
Analyzing Transactions (9)
9. Scott Company paid $2,500 for the
computer equipment that it had purchased
in transaction (3).
Double entry:
Posting:
Slide
2-27
Analyzing Transactions (10)
10. Scott Company paid a dividend of $500
to its owner/stockholder.
Double entry:
Slide
2-28
After processing its remaining transactions for
December, Scott company prepares a Trial Balance.
Scott Company
Trial Balance
December 31, 2011
Debits
$
3,950
1,500
9,650
2,400
23,500
Credits
Cash
Accounts receivable
Supplies
Prepaid Insurance
Equipment
Accounts payable
$
6,200
Unearned consulting revenue
3,000
Common stock
30,000
Dividends
600
Consulting revenue
5,800
Rental revenue
300
Salaries expense
1,400
Rent expense
2,000
Utilities expense
300
$ 45,300 $ 45,300
Total
Slide
2-29
The trial balance
lists all account
balances in the
general ledger. If
the books are in
balance, the total
debits will equal
the total credits.
Knowledge Check # 3:
Paying a previously recorded invoice from a
supplier (of supplies) involves
1.
2.
3.
4.
Slide
2-30
Debiting
Debiting
Cash.
Debiting
Payable.
Debiting
Supplies and crediting Cash.
Accounts Payable and crediting
Supplies and crediting Accounts
Cash and crediting Supplies.
The Trial Balance
Limitations of a Trial Balance
The trial balance may balance even when
1.
a transaction is not journalized,
2. a correct journal entry is not posted,
3. a journal entry is posted twice,
4. incorrect accounts are used in journalizing or posting, or
5. offsetting errors are made in recording the amount of a
transaction.
Slide
2-31
Knowledge Check # 4:
A trial balance can be described as
1.
2.
3.
4.
Slide
2-32
A list of general ledger account titles and
balances at a certain date.
A grouping of the accounts used by an
organization to prepare its basic financial
statements.
A record on which are recorded the
increases and decreases of a particular
financial statement component, such as
cash.
One of the basic financial statements of
an organization.
The Trial Balance
The accounts
come from the
ledger of SnowGo Corporation
at December 31,
2011.
Slide
2-33
Searching for and Correcting Errors
If the trial balance does not balance, the
error(s) must be found and corrected.
Make sure the trial balance
columns are correctly added.
Recompute each account
balance in the ledger.
Make sure account
balances are correctly
entered from the ledger.
Verify that each journal
entry is posted correctly.
See if debit or credit
accounts are mistakenly
placed on the trial balance.
Verify that each original
journal entry has equal
debits and credits.
Slide
2-34
After processing its remaining transactions for
December, Scott company prepares a Trial Balance.
Scott Company
Trial Balance
December 31, 2011
Debits
$
3,950
1,500
9,650
2,400
23,500
Credits
Cash
Accounts receivable
Supplies
Prepaid Insurance
Equipment
Accounts payable
$
6,200
Unearned consulting revenue
3,000
Common stock
30,000
Dividends
600
Consulting revenue
5,800
Rental revenue
300
Salaries expense
1,400
Rent expense
2,000
Utilities expense
300
$ 45,300 $ 45,300
Total
Slide
2-35
The trial balance
lists all account
balances in the
general ledger. If
the books are in
balance, the total
debits will equal
the total credits.
Using a Trial Balance to prepare Financial
Statements
Stmt. Of Cash Flows
Stmt. of Ret. Earnings
Beginning
Balance
Sheet
Slide
2-36
Income Statement
Ending
Balance
Sheet
Use the Trial Balance for Scott company to
prepare its financial statements
Slide
2-37
Income Statement
Slide
2-38
Statement of Retained Earnings
Slide
2-39
Balance Sheet
Slide
2-40
Knowledge Check # 5:
An accountant for O’Leary Company enters
a transaction in which she debits Accounts
Receivable and credits Service Revenue.
What type of transaction occurred that
results in this entry?
1.
2.
3.
4.
Slide
2-41
O’Leary collected an Account Receivable.
O’Leary performed a service in exchange for
cash.
O’Leary performed a service for a client and
sent a bill for services rendered
O’Leary wrote off an Account Receivable that
it expects not to collect.
Knowledge Check # 6:
If assets and equity have both been
reduced by equal amounts in the same
journal entry, what is the most likely
explanation?
1.
2.
3.
4.
Slide
2-42
A fixed asset has been purchased on credit.
An invoice has been received from the cell
phone company.
A supplier has been paid.
An owner has received a dividend.
Record the following transactions in journal
entries for United Delivery Inc.
June 1
June 2
June 3
June 9
June 14
June 17
June 20
June 29
June 30
Slide
2-43
Shareholders contributed $15,000 cash and a
delivery truck worth $12,000.
Paid $4,500 as rent for June, July, and
August.
Purchased supplies on account, $1,800.
Billed customers for deliveries made, $3,100.
Received $1,000 cash from a customer as
advance payment for deliveries scheduled
throughout July.
Paid $1,500 on account to suppliers.
Collected $2,300 on account from customers.
Paid $700 cash dividends to shareholders
Paid salaries for June, $2,000.
Slide
2-44
Using a Trial Balance to prepare Financial
Statements
Slide
2-45
End of Chapter 2
Slide
2-46