Presentation on theme: "Analyzing and Recording Transactions"— Presentation transcript:
1Analyzing and Recording Transactions Chapter211111
2Analyzing and Recording Process Exchanges of economic consideration between two parties.External Transactions occur between the organization and an outside party.Internal Transactions occur within the organization.
3Analyzing and Recording Process Analyze each transaction and event form source documentsRecord relevant transactions and events in a journalPost journal information to ledger accountsPrepare and analyze the trial balance
4Employee Earnings Record Source DocumentsBills from SuppliersChecksPurchase OrdersEmployee Earnings RecordBank StatementSales Tickets
5The Account and its Analysis An account is a record of increases and decreases in a specific asset, liability, equity, revenue, or expense item.The general ledger is a record containing all accounts used by the company.
6The Account and its Analysis Assets AccountsLiabilities AccountsEquity Accounts=+
14Double-Entry Accounting An account balance is the difference between the increases and decreases in an account.
15Journalizing and Posting Transactions Step 1: Analyze transactions and source documents.LiabilitiesEquityAssets=+Step 2: Apply double-entry accountingStep 3: Record journal entryStep 4: Post entry to ledger
16Journalizing Transactions Titles of Affected AccountsTransaction DateDollar amount of debits and creditsTransaction explanation
17Balance Column Account T-accounts are useful illustrations, but balance column ledger accounts are used in practice.
23Posting Journal Entries 6Enter the ledger reference.
24Analyzing Transactions – An Illustration Analysis:Double entry:101301Posting:
25Analyzing Transactions – An Illustration Analysis:Double entry:126101Posting:
26Analyzing Transactions – An Illustration Analysis:Double entry:167101Posting:
27Analyzing Transactions – An Illustration Analysis:Double entry:126201Posting:
28Analyzing Transactions – An Illustration Analysis:Double entry:403101Posting:
29After processing its remaining transactions for December, FastForward’s Trial Balance is prepared. DebitsCreditsCash3,950$Accounts receivable-Supplies9,720Prepaid Insurance2,400Equipment26,000Accounts payable6,200Unearned consulting revenue3,000C. Taylor, Capital30,000C. Taylor, Withdrawals600Consulting revenue5,800Rental revenue300Salaries expense1,400Rent expense1,000Utilities expense230Total45,300FastForwardTrial BalanceDecember 31, 2004The trial balance lists all account balances in the general ledger. If the books are in balance, the total debits will equal the total credits.
30Searching 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 into 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.
31Using a Trial Balance to Prepare Financial Statements Point in TimePoint in TimePeriod of TimeIncome StatementStatement of Owner’s EquityIncome Statement of Cash FlowsBeginning Balance SheetEnding Balance Sheet