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11 Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

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Presentation on theme: "11 Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall."— Presentation transcript:

1 11 Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

2 22 Transaction Analysis Chapter 2 Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

3 33 Explain what a transaction is Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

4 44 Transactions Events that have a financial impact on the business Can be reliably measured Have two sides: ▫Giving ▫Receiving Accounting records both sides of transactions Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

5 55 Examples of Transactions A company sells a product to a customer and receives cash GivingReceiving A company pays cash for advertising GivingReceiving Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

6 66 Define “account” and list and differentiate between different types of accounts Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

7 77 The Account Account is a record of each asset, liability, and stockholders’ equity element ▫Basic summary device of accounting Assets Liabilities Stockholders’ Equity Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

8 88 Assets Cash Accounts Receivable Notes Receivable Prepaid Expenses Inventory Economic resources that provide future benefit Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

9 99 Assets (continued) LandBuildings Equipment Furniture & Fixtures Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

10 10 Liabilities Accounts payable Notes payable Accrued liabilities Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

11 11 Stockholders’ Equity Common stock Dividends Retained earnings RevenuesExpenses Owners’ claim to assets Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

12 12 Stockholders’ Equity Accounts Common stock Retained earnings Dividends Revenues Expenses Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

13 13 Show the impact of business transactions on the accounting equation Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

14 14 Exercise 2-16A AssetsLiabilitiesStockholders’ Equity CashLandSupplies Accounts payable Common stock Retained earnings Aug. 6+39,000 Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

15 15 Exercise 2-16A AssetsLiabilitiesStockholders’ Equity CashLandSupplies Accounts payable Common stock Retained earnings Aug. 6+39,000 Aug. 9 Bal. Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

16 16 Exercise 2-16A AssetsLiabilitiesStockholders’ Equity CashLandSupplies Accounts payable Common stock Retained earnings Aug. 6+39,000 Aug. 9-29,000+29,000 Bal.10,00029,00039,000 Aug. 12 Bal. Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

17 17 Exercise 2-16A AssetsLiabilitiesStockholders’ Equity CashLandSupplies Accounts payable Common stock Retained earnings Aug. 6+39,000 Aug. 9-29,000+29,000 Bal.10,00029,00039,000 Aug. 121,700 Bal.10,00029,0001,700 39, Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

18 18 Exercise 2-16A Assets Liabilities Stockholders’ Equity CashLand Accts RecSupplies Accounts payable Cmn stock Ret. Earn. Bal. 10,00029,00039, ,700 Bal. 10,00029,0001,700 39, No entry ,600 Bal. Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

19 19 Exercise 2-16A Assets Liabilities Stockholders’ Equity CashLand Accts RecSupplies Accounts payable Cmn stock Ret. Earn. Bal.10,00029,0001,700 39,000 15No entry ,800 7,600 Bal.13,80029,0003,8001,700 39,0007, Bal. Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

20 20 Exercise 2-16A Assets Liabilities Stockholders’ Equity CashLand Accts RecSupplies Accounts payable Cmn stock Ret. Earn. Bal.13,80029,0003,8001,700 39,0007, , Bal.11,30029,0003,8001,700 39,0005,100 Aug 31 Bal Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

21 21 Exercise 2-16A Assets Liabilities Stockholders’ Equity CashLand Accts RecSupp. Accts pay Notes pay Cmn stock Ret. Earn. Bal.11,30029,0003,8001,700 39,0005,100 Aug Bal12,00029,0003,8001,0001,70039,0005,100 Aug 31 Bal Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

22 22 Exercise 2-16A Assets Liabilities Stockholders’ Equity CashLand Accts RecSupp. Accts pay Notes pay Cmn stock Ret. Earn. Bal.11,30029,0003,8001,700 39,0005,100 Aug Bal12,00029,0003,8001,0001,70039,0005,100 Aug 3112,000 Bal24,00029,0003,8001,0001,70012,00039,0005,100 Aug 31 Bal Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

23 23 Exercise 2-16A Assets Liabilities Stockholders’ Equity CashLand Accts RecSupp. Accts pay Notes pay Cmn stock Ret. Earn. Bal.11,30029,0003,8001,700 39,0005,100 Aug Bal12,00029,0003,8001,0001,70039,0005,100 Aug 3112,000 Bal24,00029,0003,8001,0001,70012,00039,0005,100 Aug Bal23,20029,0003,8001, ,00039,0005,100 Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

24 24 E2-16A part 2 How much are total assets? How much does the business expect to collect from its customer? How much does the business owe in total? $900 $12,000 How much of the assets does Morin really own? $57,000 $12,900 Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

25 25 E2-16A part 2 How much net income did the business experience during its first month of operations? Revenue: Expenses: $1,300 + $700 + $500 Net income Expenses: Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

26 26 Analyze the impact of business transactions on accounts Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

27 27 Double-Entry Accounting Business transactions include two parts ▫Giving ▫Receiving Accounting based on a double-entry system ▫Each transaction affects at least two accounts Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

28 28 T-Account Account Title (Left side)(Right side) DebitCredit Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

29 29 Rules of Debit and Credit AssetsLiabilities Stockholders’ Equity Debit Credit Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

30 30 Debit Credit Example CashCommon Stock $39,000 Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

31 31 Debit Credit Example Cash Common Stock $39,000 Land $29,000 Bal. $10,000 Bal. $29,000 Bal. $39,000 Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

32 32 Additional Stockholders’ Equity Accounts: Revenues & Expenses Assets Liabilities Stockholders’ Equity Common stock Retained earnings Dividends Revenues Expenses + + Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

33 33 Rules of Debit and Credit AssetsLiabilities Stockholders’ Equity DebitCredit Debit Common stockRetained earnings Revenue ExpensesDividends Credit Debit - Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

34 34 Record (journalize and post) transactions in the books Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

35 35 The Journal Chronological record of transactions Three steps ▫Specify each account affected by the transaction and classify by type ▫Determine if each account is increased or decreased  Use debit credit rules ▫Record in journal Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

36 36 Journal Entry JOURNAL DateAccounts and explanationDebitCredit May 1Cash50,000 Common stock50,000 Issued common stock Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

37 37 The Ledger Individual asset accounts Individual liability accounts Individual equity accounts Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

38 38 Copying Information (Posting) from the Journal to the Ledger JOURNAL DateAccounts and explanationDebitCredit May 1Cash50,000 Common stock50,000 Issued common stock Cash Common stock $50,000 Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

39 39 Flow of Accounting Data Transaction occursTransaction analyzed Transaction entered in the journal Amounts posted to the ledger accounts Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

40 40 Construct and use a trial balance Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

41 41 Trial Balance Lists all accounts with their balances Assets listed first, then liabilities and stockholders’ equity Shows that debits equal credits Usually prepared at the end of the period Facilitates preparation of the financial statements Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

42 42 Analyzing Accounts Cash Beginning balance Ending balance Cash receipts ? Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

43 43 Analyzing Accounts Accounts receivable Beginning balance Ending balance Sales on account ? Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

44 44 Analyzing Accounts Accounts payable Beginning balance Ending balance ? Purchases on account Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

45 45 Correcting Accounting Errors Trace each account from journal to ledger Missing account Reversing debits and credits doubles the error Divide out-of- balance amount by 2 If even, error may be a Slide or Transposition Divide out-of- balance amount by 9 Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

46 46 Chart of Accounts Balance Sheet Accounts AssetsLiabilitiesStockholders’ Equity 101Cash201Accts. payable301Common stock 111Accts. receivable231Notes payable311Dividends 141Office supplies312Retained earnings 151Office furnitureIncome Statement Accounts 191LandRevenuesExpenses 401Service revenue501Rent expense 502Salary expense 503Utilities expense Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

47 47 Normal Balances of Accounts Assets Liabilities Stockholders’ Equity overall Common stock Retained earnings Dividends Revenues Expenses Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

48 48 Account Formats Tw0-column T-account Four-column format Account: Cash Account No. 101 Balance DateItemDebitCreditDebitCredit Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

49 49 Analyzing Transactions Using Only T-Accounts Decisions often are made without a complete accounting system T-Accounts allow managers to analyze transactions quickly Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

50 50 Short Exercise 2-13 Cash Accounts PayableCommon Stock Computer Equipment Debits = Credits = Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

51 51 Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.

52 52 Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.


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