Presentation is loading. Please wait.

Presentation is loading. Please wait.

Chapter 2 Accounting for Transactions and the Financial Statements.

Similar presentations


Presentation on theme: "Chapter 2 Accounting for Transactions and the Financial Statements."— Presentation transcript:

1 Chapter 2 Accounting for Transactions and the Financial Statements

2 Financial Statements Let’s prepare the Financial Statements reflecting the transactions we have recorded. 1.Income Statement 2.Statement of Retained Earnings 3.Balance Sheet 4.Statement of Cash Flows 1.Income Statement 2.Statement of Retained Earnings 3.Balance Sheet 4.Statement of Cash Flows P1

3 Net income is the difference between Revenues and Expenses. The income statement describes a company’s revenues and expenses along with the resulting net income or loss over a period of time due to earnings activities. Income Statement P1

4 The net income of $2,200 increases Retained Earnings by $2,200. Statement of Retained Earnings P1

5 The Balance Sheet describes a company’s financial position at a point in time. Balance Sheet P1

6 Statement of Cash Flows P1

7 Land Equipment Buildings Cash Notes Receivabl e Supplies Prepaid Accounts Accounts Receivable Asset Accounts C 3

8 Accrued Liabilities Unearned Revenue Notes Payable Accounts Payable Liability Accounts C 3

9 Equity Accounts Revenues Common Stock Dividends Expenses Equity Accounts C 3

10 Assets Liabilities & Equity Accounting Equation Liabilities Equity Assets =+ A1

11 Liabilities Equity Assets =+ Expanded Accounting Equation Revenues Expenses Common Stock Dividends __ ++ __ Retained Earnings Liabilities Equity Assets =+ A1

12 Transaction Analysis Equation The accounting equation MUST remain in balance after each transaction. Liabilities Equity Assets =+ A2

13 Analyze each transaction and event form source documents Analyzing and Recording Process Record relevant transactions and events in a journal Post journal information to ledger accounts Prepare and analyze the trial balance C 1

14 External Transactions occur between the organization and an outside party. Internal Transactions occur within the organization. Analyzing and Recording Process Exchanges of economic consideration between two parties. C 1

15 Sales Tickets Bank Statements Purchase Orders Checks Source Documents Bills from Suppliers Employee Earnings Records C 2

16 An account is a record of increases and decreases in a specific asset, liability, equity, revenue, or expense item. The Account and its Analysis The general ledger is a record containing all accounts used by the company. C 3

17 Assets Accounts = The Account and its Analysis + Liability Accounts Equity Accounts C 3

18 Ledger and Chart of Accounts The ledger is a collection of all accounts for an information system. A company’s size and diversity of operations affect the number of accounts needed. The chart of accounts is a list of all accounts and includes an identifying number for each account. C 4

19 A T-account represents a ledger account and is a tool used to understand the effects of one or more transactions. Debits and Credits C 5

20 Double-Entry Accounting An account balance is the difference between the increases and decreases in an account. Notice the T-Account C 5

21 Journalizing & Posting Transactions Step 1: Analyze transactions and source documents. Liabilities Equity Assets =+ Step 2: Apply double- entry accounting Step 4: Post entry to ledger Step 3: Record journal entry P1

22  Dollar amount of debits and credits Journalizing Transactions  Transaction Date  Transaction explanation  Titles of Affected Accounts P1

23 Analyzing Transactions Analysis: Double entry: Posting: A1

24 Analyzing Transactions Analysis: Double entry: Posting: A1

25 Analyzing Transactions Analysis: Double entry: Posting: A1

26 Analyzing Transactions Analysis: Double entry: Posting: A1

27 Analyzing Transactions Analysis: Double entry: Posting: A1

28 After processing its remaining transactions for December, FastForward’s Trial Balance is prepared. DebitsCredits Cash4,350$ Accounts receivable- Supplies9,720 Prepaid Insurance2,400 Equipment26,000 Accounts payable6,200$ Unearned consulting revenue3,000 Common stock30,000 Dividends200 Consulting revenue5,800 Rental revenue300 Salaries expense1,400 Rent expense1,000 Utilities expense230 Total45,300$ $ FastForwar d Trial Balance December 31, 2007 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. A1

29 Six Steps for 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.  Make sure account balances are correctly entered from the ledger.  See if debit or credit accounts are mistakenly placed on the trial balance.  Recompute each account balance in the ledger.  Verify that each journal entry is posted correctly.  Verify that each original journal entry has equal debits and credits. P2

30 Income Statement P3

31 Statement of Retained Earnings P3

32 Balance Sheet P3


Download ppt "Chapter 2 Accounting for Transactions and the Financial Statements."

Similar presentations


Ads by Google