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C2 - 1 Learning Objectives 1.Usefulness of an Account 2.Characteristics of an Account 3.Analyzing and Summarizing Transactions 4.Illustration of Analyzing.

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Presentation on theme: "C2 - 1 Learning Objectives 1.Usefulness of an Account 2.Characteristics of an Account 3.Analyzing and Summarizing Transactions 4.Illustration of Analyzing."— Presentation transcript:

1 C2 - 1 Learning Objectives 1.Usefulness of an Account 2.Characteristics of an Account 3.Analyzing and Summarizing Transactions 4.Illustration of Analyzing and Summarizing 5.Trial Balance 6.Discovery and Correction of Errors 7.Financial Analysis and Interpretation Power Notes Analyzing Transactions Analyzing Transactions Chapter F2 C2

2 C2 - 2 Double-Entry Accounting Analyzing and Recording Transactions Chart of Accounts, Trial Balance Journal, Ledger, and Trial Balance Recording and Posting an Entry Correcting Errors Horizontal Analysis Slide #Power Note Topics Power Notes Analyzing Transactions Analyzing Transactions Chapter F2 Note: To select a topic, type the slide # and press Enter.

3 C2 - 3 Double-Entry Accounting “ Double-entry accounting is based on a simple concept: each party in a business transaction will receive something and give something in return. In bookkeeping terms, what is received is a debit and what is given is a credit. The T account is a representation of a scale or balance.” Luca Pacioli Developer of Double-Entry Accounting Scale or Balance Receive DEBIT Give CREDIT T account Left Side Receive DEBIT Right Side Give CREDIT

4 C2 - 4 Expanded Accounting Equation “ The basic accounting equation can be expanded to include all five financial categories indicating what has been received and given.” DEBITS received CREDITS given =

5 C2 - 5 Expanded Accounting Equation “ The basic accounting equation can be expanded to include all five financial categories indicating what has been received and given.” DEBITS received CREDITS given = Assets

6 C2 - 6 Expanded Accounting Equation “ The basic accounting equation can be expanded to include all five financial categories indicating what has been received and given.” Assets DEBITS received CREDITS given = Expenses

7 C2 - 7 Expanded Accounting Equation “ The basic accounting equation can be expanded to include all five financial categories indicating what has been received and given.” Expenses Assets DEBITS received CREDITS given = Liabilities

8 C2 - 8 Expanded Accounting Equation “ The basic accounting equation can be expanded to include all five financial categories indicating what has been received and given.” Expenses Liabilities Assets DEBITS received CREDITS given = Owner’s Equity

9 C2 - 9 Expanded Accounting Equation “ The basic accounting equation can be expanded to include all five financial categories indicating what has been received and given.” Expenses Liabilities Owner’s Equity Assets DEBITS received CREDITS given = Revenues

10 C Expanded Accounting Equation “ The basic accounting equation can be expanded to include all five financial categories indicating what has been received and given.” Expenses Liabilities Owner’s Equity Assets DEBITS received CREDITS given = Revenues Net Income

11 C NetSolutionsNetSolutions “ On November 1, 2002, I started a business called NetSolutions. I plan to use my knowledge of microcomputers and offer computer consulting services for a fee. The following double-entry transactions show how amounts received (debits) always equal amounts given (credits).” Chris Clark, Owner

12 C Business Transactions General Journal receive Debit give Credit NetSolutions (investee) Chris Clark (investor) give Credit Entry A. DateDescriptionDebitCredit 11/1 Chris Clark deposits $25,000 in a bank account for NetSolutions in exchange for capital stock.

13 C Chris Clark deposits $25,000 in a bank account for NetSolutions in exchange for capital stock. Business Transactions General Journal receive Debit give Credit NetSolutions (investee) Cash Chris Clark (investor) give Credit Entry A. DateDescriptionDebitCredit 11/1Cash 25,000

14 C Business Transactions General Journal DateDescriptionDebitCredit 11/1Cash 25,000 Capital Stock 25,000 receive Debit give Credit NetSolutions (investee) Cash Capital Stock Chris Clark (investor) give Credit Entry A. Chris Clark deposits $25,000 in a bank account for NetSolutions in exchange for capital stock.

15 C NetSolutions buys land for $20,000. Business Transactions receive Debit give Credit NetSolutions (buyer) Land Owner (seller) give Credit Entry B. General Journal DateDescriptionDebitCredit 11/5

16 C NetSolutions buys land for $20,000. Business Transactions receive Debit give Credit NetSolutions (buyer) Land Land Owner (seller) give Credit Entry B. General Journal DateDescriptionDebitCredit 11/5Land 20,000

17 C NetSolutions buys land for $20,000. Business Transactions receive Debit give Credit NetSolutions (buyer) Land Cash Land Owner (seller) give Credit Entry B. General Journal DateDescriptionDebitCredit 11/5Land 20,000 Cash 20,000

18 C NetSolutions buys supplies for $1,350, agreeing to pay in the near future. Business Transactions receive Debit give Credit NetSolutions (buyer) Supplier (seller) give Credit Entry C. General Journal DateDescriptionDebitCredit 11/10

19 C NetSolutions buys supplies for $1,350, agreeing to pay in the near future. Business Transactions receive Debit give Credit NetSolutions (buyer) Supplies Supplier (seller) give Credit Entry C. General Journal DateDescriptionDebitCredit 11/10Supplies 1,350

20 C NetSolutions buys supplies for $1,350, agreeing to pay in the near future. Business Transactions receive Debit give Credit NetSolutions (buyer) Supplies Supplier (seller) give Credit Entry C. A promise to pay later General Journal DateDescriptionDebitCredit 11/10Supplies 1,350 Accounts Payable 1,350

21 C NetSolutions earns fees of $7,500, receiving cash. Business Transactions receive Debit give Credit NetSolutions (seller) Customer (buyer) give Credit Entry D. General Journal DateDescriptionDebitCredit 11/18

22 C NetSolutions earns fees of $7,500, receiving cash. Business Transactions receive Debit give Credit NetSolutions (seller) Cash Customer (buyer) give Credit Entry D. General Journal DateDescriptionDebitCredit 11/18Cash 7,500

23 C NetSolutions earns fees of $7,500, receiving cash. Business Transactions receive Debit give Credit NetSolutions (seller) Cash Customer (buyer) give Credit Entry D. Services General Journal DateDescriptionDebitCredit 11/18Cash 7,500 Fees Earned 7,500

24 C DateDescriptionDebitCredit NetSolutions paid: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275. Business Transactions General Journal receive Debit give Credit NetSolutions (buyer) Various suppliers give Credit Entry E.

25 C DateDescriptionDebitCredit 11/18 Wages Expense2,125 Rent Expense800 Utilities Expense450 Misc. Expense275 NetSolutions paid: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275. Business Transactions General Journal receive Debit give Credit NetSolutions (buyer) Services, benefits Various suppliers give Credit Entry E.

26 C DateDescriptionDebitCredit 11/18 Wages Expense2,125 Rent Expense800 Utilities Expense450 Misc. Expense275 Cash 3,650 NetSolutions paid: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275. Business Transactions General Journal receive Debit give Credit NetSolutions (buyer) Services, benefits Various suppliers give Credit Entry E. Cash

27 C NetSolutions pays $950 to creditors on account. Business Transactions receive Debit give Credit NetSolutions (payor) Supplier (payee) give Credit Entry F. General Journal DateDescriptionDebitCredit 11/30

28 C NetSolutions pays $950 to creditors on account. Business Transactions receive Debit give Credit NetSolutions (payor) Reduction in obligation Supplier (payee) give Credit Entry F. General Journal DateDescriptionDebitCredit 11/30Accounts Payable 950

29 C NetSolutions pays $950 to creditors on account. Business Transactions receive Debit give Credit NetSolutions (payor) Reduction in obligation Supplier (payee) give Credit Entry F. Cash General Journal DateDescriptionDebitCredit 11/30Accounts Payable 950 Cash 950

30 C At the end of the month, the cost of supplies on hand is $550. Business Transactions receive Debit give Credit NetSolutions (user) Internal Transaction (no external entity) give Credit Entry G. General Journal DateDescriptionDebitCredit 11/30

31 C At the end of the month, the cost of supplies on hand is $550. Business Transactions receive Debit give Credit NetSolutions (user) Use of supplies Internal Transaction (no external entity) give Credit Entry G. General Journal Balance of Supplies account $1,350 less $550 on hand = $800 used DateDescriptionDebitCredit 11/30Supplies Expense 800

32 C At the end of the month, the cost of supplies on hand is $550. Business Transactions receive Debit give Credit NetSolutions (user) Use of supplies Internal Transaction (no external entity) give Credit Entry G. Supplies General Journal DateDescriptionDebitCredit 11/30Supplies Expense 800 Supplies 800 Balance of Supplies account $1,350 less $550 on hand = $800 used

33 C NetSolutions paid dividends of $2,000. Business Transactions receive Debit give Credit NetSolutions (payor) Chris Clark (stockholder) give Credit Entry H. General Journal DateDescriptionDebitCredit 11/30

34 C Business Transactions receive Debit give Credit NetSolutions (payor) Reduction in equity Chris Clark (stockholder) give Credit Entry H. General Journal DateDescriptionDebitCredit 11/30Dividends 2,000 NetSolutions paid dividends of $2,000.

35 C Business Transactions receive Debit give Credit NetSolutions (payor) Reduction in obligation Chris Clark (stockholder) give Credit Entry H. Cash General Journal DateDescriptionDebitCredit 11/30Dividends 2,000 Cash 2,000 NetSolutions paid dividends of $2,000.

36 C NetSolutions Chart of Accounts Balance Sheet Income Statement 1.Assets 11Cash 12Accounts Receivable 14Supplies 15Prepaid Insurance 17Land 18Office Equipment 2.Liabilities 21Accounts Payable 23Unearned Rent 3.Owner’s Equity 31Capital Stock 32Retained Earnings 33Dividends 4.Revenue 41Fees Earned 5.Expenses 51Wages Expense 52Rent Expense 54Utilities Expense 55Supplies Expense 59Miscellaneous Expense

37 C NetSolutions Trial Balance November 30, Cash5,900 14Supplies550 17Land20,000 21Accounts Payable400 31Capital Stock25,000 33Dividends2,000 41Fees Earned7,500 51Wages Expense2,125 52Rent Expense800 54Utilities Expense450 55Supplies Expense800 59Miscellaneous Expense27532,900

38 C NetSolutions Trial Balance November 30, Cash5,900 14Supplies550 17Land20,000 21Accounts Payable400 31Capital Stock25,000 33Dividends2,000 41Fees Earned7,500 51Wages Expense2,125 52Rent Expense800 54Utilities Expense450 55Supplies Expense800 59Miscellaneous Expense27532,900 Balance Sheet

39 C Income Statement NetSolutions Trial Balance November 30, Cash5,900 14Supplies550 17Land20,000 21Accounts Payable400 31Capital Stock25,000 33Dividends2,000 41Fees Earned7,500 51Wages Expense2,125 52Rent Expense800 54Utilities Expense450 55Supplies Expense800 59Miscellaneous Expense27532,900

40 C Transactions are analyzed and recorded in journal. Documents Journal Journal, Ledger, Trial Balance

41 C Transactions are analyzed and recorded in journal. Documents Journal 2.Transactions are posted from journal to ledger. Journal Ledger Journal, Ledger, Trial Balance

42 C Transactions are analyzed and recorded in journal. Documents Journal 2.Transactions are posted from journal to ledger. Journal Ledger 3.Trial balance is prepared. Journal, Ledger, Trial Balance Trial Balance

43 C Post. DateDescriptionRef.DebitCredit 12/1Prepaid Insurance 2,400 Cash 2,400 General Journal Page 1 Recording and Posting an Entry 1. Analyze and record the transaction as shown. 2. Post the debit side of the transaction. 3. Post the credit side of the transaction.

44 C Post. DateDescriptionRef.DebitCredit 12/1Prepaid Insurance 2,400 Cash 2,400 Post. Balance DateItemRef.DebitCredit DebitCredit 12/1 Account: Prepaid Insurance Account No. 15 General Journal General Ledger Page 1 Recording and Posting an Entry 1 1 Enter the transaction date in the ledger account.

45 C Post. DateDescriptionRef.DebitCredit 12/1Prepaid Insurance 2,400 Cash 2,400 Post. Balance DateItemRef.DebitCredit DebitCredit 12/11 2,400 Account: Prepaid Insurance Account No. 15 General Journal General Ledger Page 1 Recording and Posting an Entry 2 2 Enter the debit amount in the ledger debit column.

46 C Post. DateDescriptionRef.DebitCredit 12/1Prepaid Insurance 2,400 Cash 2,400 Post. Balance DateItemRef.DebitCredit DebitCredit 12/11 2,4002,400 Account: Prepaid Insurance Account No. 15 General Journal General Ledger Page 1 Recording and Posting an Entry 3 3 Update the ledger account balance.

47 C Post. DateDescriptionRef.DebitCredit 12/1Prepaid Insurance 2,400 Cash 2,400 Post. Balance DateItemRef.DebitCredit DebitCredit 12/11 Account: Prepaid Insurance Account No. 15 General Journal General Ledger Page 1 Recording and Posting an Entry 4 4 Enter the journal page in the ledger account.

48 C Post. DateDescriptionRef.DebitCredit 12/1Prepaid Insurance152,400 Cash 2,400 Post. Balance DateItemRef.DebitCredit DebitCredit 12/112,4002,400 Account: Prepaid Insurance Account No. 15 General Journal General Ledger Page 1 Recording and Posting an Entry 5 5 Enter the ledger account number in the journal.

49 C Recording and Posting an Entry Post. DateDescriptionRef.DebitCredit 12/1Prepaid Insurance152,400 Cash112,400 Post. Balance DateItemRef.DebitCredit DebitCredit 11/30Balance5,900 12/112,4003,500 Account: Cash Account No. 11 General Journal General Ledger Page All five parts of the credit posting are shown.

50 C Correcting Errors Three Types of Errors Journal Entry Ledger Posting Correction Procedure 1.incorrectnot postedcorrect Journal

51 C Correcting Errors Three Types of Errors Journal Entry Ledger Posting Correction Procedure 1.incorrectnot postedcorrect Journal 2.correctincorrectly postedcorrect Ledger

52 C Correcting Errors Three Types of Errors Journal Entry Ledger Posting Correction Procedure Error 3 requires a correcting journal entry. 1.incorrectnot postedcorrect Journal 2.correctincorrectly postedcorrect Ledger 3.incorrectalready postedrecord and post a correcting entry

53 C General Journal – As recorded and posted Correcting Errors – An Example On May 5 a purchase of office equipment on account was incorrectly journalized and posted as shown. What part of this entry is incorrect? What correcting entry would you make? DateDescriptionDebitCredit 5/5Supplies 12,500 Accounts Payable 12,500

54 C General Journal – As recorded and posted On May 5 a purchase of office equipment on account was incorrectly journalized and posted as shown. General Journal – A correcting entry Correcting Errors – An Example DateDescriptionDebitCredit 5/5Supplies 12,500 Accounts Payable 12,500 DateDescriptionDebitCredit 5/5

55 C General Journal – As recorded and posted On May 5 a purchase of office equipment on account was incorrectly journalized and posted as shown. Correcting Errors – An Example General Journal – A correcting entry DateDescriptionDebitCredit 5/5Supplies 12,500 Accounts Payable 12,500 DateDescriptionDebitCredit 5/5Office Equipment 12,500

56 C General Journal – As recorded and posted On May 5 a purchase of office equipment on account was incorrectly journalized and posted as shown. Correcting Errors – An Example General Journal – A correcting entry DateDescriptionDebitCredit 5/5Office Equipment 12,500 Supplies 12,500 DateDescriptionDebitCredit 5/5Supplies 12,500 Accounts Payable 12,500

57 C Objective: Use horizontal analysis to compare financial statements from different periods. Financial Analysis and Interpretation Comparative Balance Sheet December 31, 2003 and 2002 Assets Current assets$ 550,000$ 533,000 Long-term investments95,000177,500 Plant assets (net)444,500470,000 Intangible assets50,00050,000 $1,139,500$1,230,500 Increase (Decrease) AmountPercent

58 C Objective: Use horizontal analysis to compare financial statements from different periods. Financial Analysis and Interpretation Comparative Balance Sheet December 31, 2003 and 2002 Assets Current assets$ 550,000$ 533,000$ 17, % Long-term investments95,000177,500(82,500)(46.5%) Plant assets (net)444,500470,000(25,500)(5.4%) Intangible assets50,00050,000— $1,139,500$1,230,500$ (91,000)(7.4%) Increase (Decrease) AmountPercent Horizontal Analysis: Horizontal Analysis: Current year (2003)$550,000 Base year (1999)$533,000 = 103.2% Increase amount$17,000 Base year (2002)$533,000 = 3.2%

59 C Objective: Use horizontal analysis to compare financial statements from different periods. Financial Analysis and Interpretation Comparative Income Statement December 31, 2003 and 2002 Sales$1,530,500$1,234,000 Sales returns32,50034,000 Net sales$1,498,000$1,200,000 Cost of goods sold1,043,000820,000 Gross profit $ 455,000$ 380,000 Increase (Decrease) AmountPercent

60 C Objective: Use horizontal analysis to compare financial statements from different periods. Financial Analysis and Interpretation Comparative Income Statement December 31, 2003 and 2002 Sales$1,530,500$1,234,000$296, % Sales returns32,50034,000(1,500)(4.4%) Net sales$1,498,000$1,200,000$298,000)24.8% Cost of goods sold1,043,000820,000223, % Gross profit $ 455,000$ 380,000$ 75, % Increase (Decrease) AmountPercent Horizontal Analysis: Horizontal Analysis: Current year (2003)$1,498,000 Base year (2002)$1,200,000 = 124.8% Increase amount$298,000 Base year (2002)$1,200,000 = 24.8%

61 C Note: To see the topic slide, type 2 and press Enter. This is the last slide in Chapter F2. Power Notes Analyzing Transactions Analyzing Transactions Chapter F2


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