Presentation is loading. Please wait.

Presentation is loading. Please wait.

UNIT-3 Acct - 103 College of Business Administration, Al-Kharj Salman Bin Abdulaziz University KINGDOM OF SAUDI ARABIA.

Similar presentations


Presentation on theme: "UNIT-3 Acct - 103 College of Business Administration, Al-Kharj Salman Bin Abdulaziz University KINGDOM OF SAUDI ARABIA."— Presentation transcript:

1

2 UNIT-3 Acct College of Business Administration, Al-Kharj Salman Bin Abdulaziz University KINGDOM OF SAUDI ARABIA

3 2 Syllabus Trial Balance: Meaning, Importance and Preparation of Trial Balance. Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

4 Objective of This Unit 1 Explain what an account is and how it helps in the recording process 2 Define debits and credits and explain how they are used to record business transactions 3 Identify the basic steps in the recording process 4 Explain what a journal is and how it helps in the recording process 5 Explain what a ledger is and how it helps in the recording process 6 Explain what posting is and how it helps in the recording process 3 Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

5 THE RECORDING PROCESS 1 A nalyze each transaction (+, -) 2 E nter transaction in a journal 3 T ransfer journal information to ledger accounts 4 Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

6 THE JOURNAL Transactions Are initially recorded in chronological order before they are transferred to the ledger accounts. Steps in journal; o Spaces for dates o Account titles and explanations o References o Two amount columns 5 Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

7 A journal makes several contributions to recording process: 1 discloses in one place the complete effect of a transaction 2 provides a chronological record of transactions 3 helps to prevent or locate errors as debit and credit amounts for each entry can be compared THE JOURNAL 6 Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

8 JOURNALIZING Entering transaction data in the journal is known as journalizing. Separate journal entries are made for each transaction. A complete entry consists of: 1 the date of the transaction, 2 the accounts and amounts to be debited and credited, 3 a brief explanation of transaction. 7 Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

9 EXPANDED BASIC EQUATION & RULES OF DEBIT (Dr) /CREDIT (Cr) & EFFECTS Liabilities Assets Owner’s Equity =+- += +- Assets Dr. Cr. + - Liabilities Dr.Cr. - + Dr.Cr. Owner’s Drawing + - Dr.Cr. Revenues - + Dr.Cr. Expense s + - Dr.Cr. Owner’s Capital Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

10 TECHNIQUE OF JOURNALIZING The date of the transaction is entered into the date column. 1 Computer Equipment 7,000 Cash 7,000 (Purchased equipment for cash) 9 Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

11 The debit account title is entered at the extreme left margin of the Account Titles and Explanation column. The credit account title is indented on the next line. 1 Computer Equipment 7,000 Cash 7,000 (Purchased equipment for cash) 10 TECHNIQUE OF JOURNALIZING Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

12 The amounts for the debits are recorded in the Debit column and the amounts for the credits are recorded in the Credit column. 11 TECHNIQUE OF JOURNALIZING Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

13 A brief explanation of the transaction is given. 12 TECHNIQUE OF JOURNALIZING Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

14 A space is left between journal entries. The blank space separates individual journal entries and makes the entire journal easier to read. GENERAL JOURNAL J1 Date Account Titles and Explanation Ref. Debit Credit 2005 Sept. 1 Cash 15,000 R. Neal, Capital 15,000 (Invested cash in business) 1 Computer Equipment 7,000 Cash 7,000 (Purchased equipment for cash) 13 TECHNIQUE OF JOURNALIZING Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

15 The column entitled Ref. is left blank at the time journal entry is made and is used later when the journal entries are transferred to the ledger accounts. 14 TECHNIQUE OF JOURNALIZING Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

16 THE A OR THE LEDGER THE A CCOUNT OR THE LEDGER An account is an individual accounting recording of increase and decrease in a specific asset, liability, expenses revenue, or owner’s equity item. A Group of accounts maintained by a company is called the ledger. There are separate accounts for the items we used in transactions such as Cash, Salaries Expense, Sales Purchase etc. A ledger contains all the assets, liabilities, and owner’s equity, cash, salaries accounts 15 Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

17 BASIC FORM OF ACCOUNT STUDY OBJECTIVE 2 The simplest form an account consists of  The title of the account  Left or debit side  Right or credit side The alignment of these parts resembles the letter T = T account Left or debit side Title of Account Right or credit side Debit balanceCredit balance 16 Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

18 DEBITS AND CREDITS  Debit indicates left and Credit indicates right  Recording SR. on the left side of an account is debiting (Dr) the account  Recording SR. on the right side is crediting (Cr) the account  If the total of debit amounts is bigger than credits, the account has a debit balance  If the total of credit amounts is bigger than debits, the account has a credit balance Balance of Accounts: Either will be; Dr OR Cr Debit (Dr) = Excess of DEBIT balance over CREDIT balance, Gives Debit Balance of the concern accounts. Example; Debit ˃ Credit = Debit (Dr) Balance Credit (Cr) = Excess of CREDIT balance over DEBIT balance, Gives Credit balance of the concern accounts. Example; Credit ˃ Debit = Credit (Cr) Balance 17 Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

19 DOUBLE-ENTRY SYSTEM Equal debits and credits made accounts for each transaction Total debits always equal the total credits Accounting equation always stays in balance AssetsLiabilitiesEquity 18 Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

20 DEBIT AND CREDIT EFFECTS — ASSETS AND LIABILITIES DebitsCredits Increase assets Decrease assets Decrease liabilities Increase liabilities 19 Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

21 NORMAL BALANCES — ASSETS AND LIABILITIES Assets Increase Decrease Debit Credit Decrease Increase Debit Credit Liabilities Normal Balance Normal Balance 20 Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

22 DEBIT AND CREDIT EFFECTS — OWNER’S CAPITAL DebitsCredits Decrease owner’s capital Increase owner’s capital 21 Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

23 NORMAL BALANCE — OWNER’S CAPITAL Owner’s Capital Decrease Increase Debit Credit Normal Balance 22 Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

24 DEBIT AND CREDIT EFFECTS — OWNER’S DRAWING DebitsCredits Increase owner’s drawing Decrease owner’s drawing Remember, Drawing is a contra-account – an account that is backwards from the account it accompanies (the Capital account). 23 Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

25 NORMAL BALANCE — OWNER’S DRAWING Owner’s Drawing Normal Balance Increase Decrease Debit Credit 24 Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

26 DEBIT AND CREDIT EFFECTS — REVENUES AND EXPENSES Decrease revenues Increase revenues Increase expenses Decrease expenses DebitsCredits 25 Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

27 NORMAL BALANCES — REVENUES AND EXPENSES Increase Decrease Debit Credit Expenses Revenues Decrease Increase Debit Credit Normal Balance 26 Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

28 POSTING A JOURNAL ENTRY In the ledger, enter in the appropriate columns of the account(s) debited the date, journal page, and debit amount shown in the journal. 27 Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

29 POSTING A JOURNAL ENTRY In the reference column of the journal, write the account number to which the debit amount was posted. 28 Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

30 POSTING A JOURNAL ENTRY In the ledger, enter in the appropriate columns of the account(s) credited the date, journal page, and credit amount shown in the journal. GENERAL LEDGER CASH NO.10 Date Explanation Ref. Debit Credit Balance 2005 Sept. 1 J1 15, Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

31 POSTING A JOURNAL ENTRY In the reference column of the journal, write the account number to which the credit amount was posted. 30 Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

32 PAYMENT OF MONTHLY RENT Basic Analysis Debit-Credit Analysis Transaction October 3, office rent for October is paid in cash, SR.900. The expense Rent is increased SR.900 Payment pertains only to the current month Asset Cash is decreased SR.900. Debits increase expenses: debit Rent Expense SR.900. Credits decrease assets: credit Cash SR Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

33 PAYMENT FOR INSURANCE -Asset Prepaid Insurance increases SR.600 -Payment extends to more than the current month -Asset Cash is decreased SR Payments of expenses benefiting more than one period are prepaid expenses or prepayments. Transaction October 4, SR.600 Paid one-year insurance policy- expires next year on September 30. Debit-Credit Analysis Debits increase assets: debit Prepaid Insurance SR.600. Credits decrease assets:credit Cash SR.600. Basic Analysis 32 Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

34 WITHDRAWAL OF CASH BY OWNER Basic Analysis Debit-Credit Analysis Transaction October 20, C. R. Byrd withdraws SR.500 cash for personal use. The owner’s equity account C. R. Byrd, Drawing is increased SR.500. The asset Cash is decreased SR.500. Debits increase drawings: debit C. R. Byrd, Drawing SR.500. Credits decrease assets: credit Cash SR Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

35 WITHDRAWAL OF CASH BY OWNER JOURNAL ENTRY POSTING 34 Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

36 PAYMENT OF SALARIES Basic Analysis Debit-Credit Analysis Transaction October 26, employee salaries of SR.4,000 are owed and paid in cash. (See October 9 transaction.) The expense account Salaries Expense is increased SR.4,000; the asset Cash is decreased SR.4,000. Debits increase expenses: debit Salaries Expense SR.4,000. Credits decrease assets: credit Cash SR.4, Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

37 PAYMENT OF SALARIES JOURNAL ENTRY POSTING 36 Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

38 RECEIPT OF CASH FOR FEES EARNED Basic Analysis Debit-Credit Analysis Transaction October 31, received SR.10,000 in cash from Copa Company for advertising services rendered in October. The asset Cash is increased SR.10,000; the revenue Fees Earned is increased SR.10,000. Debits increase assets: debit Cash SR.10,000. Credits increase revenues: credit Fees Earned SR.10, Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

39 RECEIPT OF CASH FOR FEES EARNED JOURNAL ENTRY POSTING 38 Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

40 Practical Problems  : Journalise the following transactions: On September 1, Mr.Fahad invested SR.15,000 cash in the business, and Soft byte purchased computer equipment for SR.7,000 cash. Solution: General Journal Date Account Titles and Explanation Ref.DebitCredit 2008 Sept. 1 1 Cash Fahad, Capital (Owner’s investment of cash in business) Computer Equipment Cash (Purchase of equipment for cash)

41 Date Account Titles and Explanation Ref.DebitCredit 2008 July 1 Delivery Equipment Cash Accounts Payable (Purchased truck for cash with balance on account) 14,000 8,000 6,000 on July 1, Butler Company purchases a delivery truck costing SR.14,000. It pays SR.8,000 cash now and agrees to pay the remaining SR.6,000 on account (to be paid later). Make a compound entry for the above transactions. Solution: General Journal 40 Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

42 Kashif engaged in the following activities in establishing his salon, Hair It Is: 1. Opened a bank account in the name of Hair It Is and deposited SR.20,000 of her own money in this account as her initial investment. 2. Purchased equipment on account (to be paid in 30 days) for a total cost of SR.4,800. Prepare the entries to record the transactions. Solution: General Journal Date Account Titles and Explanation Ref.DebitCredit 1 2 Cash Kashif, Capital (Owner’s investment of cash in business) Equipment Accounts Payable (Purchase of equipment on account 20,000 4,800 20,000 4, Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

43 On October 1, C. R. Byrd invests SR.10,000 cash in an advertising company called Pioneer Advertising Agency. Make Journal entry of this transaction and post it in the ledger. Solution: Journal Entry Posting Cash CR.Byrd Capital Oct Oct.1 10,000 Oct 1Cash C. R. Byrd, Capital (Owner’s investment of cash in business , Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

44 On October 2, Pioneer receives a SR.1,200 cash advance from R. Knox, a client, for advertising services that are expected to be completed by December 31. CashUnearned Revenue Oct 2Cash Unearned Revenue (Received cash from R. Knox for future service) ,200 Oct 2 1, Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

45 On October 3, Pioneer pays office rent for October in cash, SR.900. On October 4, Pioneer pays SR.600 for a one-year insurance policy that will expire next year on September 30. Make Journal entries of above transactions and post then into ledger. Solution: Journal Entries Date Account Titles and Explanation Ref.DebitCredit Oct 3 Oct 4 Rent Expense Cash (Paid October rent) Prepaid Insurance Cash (Paid one-year policy;effective date October 1) Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

46 CashRent Expense Oct Oct Oct Prepaid Insurance Oct Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

47 Which one of the following represents the expanded basic accounting equation? – Assets = Liabilities + Owner’s Capital + Owner’s Drawings – Revenue - Expenses. – Assets + Owner’s Drawings + Expenses = Liabilities + Owner’s Capital + Revenue. – Assets – Liabilities – Owner’s Drawings = Owner’s Capital + Revenue – Expenses. – Assets = Revenue + Expenses – Liabilities. 46 Deptt. of Accounting, CBAK

48 HOME ASSIGNMENT - 3 Mr. Bob opened a shop on September 1, During the first month of operations the following transactions occurred. Sept. 1 Invested SR.20,000 cash in the business. 2 Paid SR.1,000 cash for store rent for September. 3 Purchased washers and dryers for SR.25,000, paying SR.10,000 in cash and signing a SR.15,000, 6-month, 12% note payable. 4 Paid SR.1,200 for a one-year accident insurance policy. 10 Received a bill from the Daily News for advertising the opening of the Laundromat SR Withdrew SR.700 cash for personal use. 30 Determined that cash receipts for laundry services for the month were SR.6, Instructions (a) Journalize the September transactions. (Use J1 for the journal page number.) (b) Open ledger accounts and post the September transactions 47 Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK


Download ppt "UNIT-3 Acct - 103 College of Business Administration, Al-Kharj Salman Bin Abdulaziz University KINGDOM OF SAUDI ARABIA."

Similar presentations


Ads by Google