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Recording, Storing, & Reporting Accounting Information Appendix A.

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Presentation on theme: "Recording, Storing, & Reporting Accounting Information Appendix A."— Presentation transcript:

1 Recording, Storing, & Reporting Accounting Information Appendix A

2 Recording Accounting system - identifies, measures, records, and retains accounting information Account - records and retains the monetary information from transactions General ledger - the entire set of accounts that a company uses App. A

3 Debit entry - monetary amount recorded on the left side Credit entry - monetary amount recorded on the right side Debits and Credits Left (debit) sideRight (credit) side Title of Account App. A

4 Recording Rules Asset accounts are: increased by debit entries decreased by credit entries Liability accounts are: increased by credit entries decreased by debit entries App. A

5 Recording Rules Permanent owner’s equity, or capital accounts are: increased by credit entries decreased by debit entries App. A

6 Recording Rules Temporary owner’s equity accounts have the following rules: Withdrawal accounts are increased by debit entries and decreased by credit entries Revenue accounts are increased by credit entries and decreased by debit entries Expense accounts are increased by debit entries and decreased by credit entries App. A

7 Recording Rules Double entry rule - the total amount of the debit entries must equal the total amount of the credit entries for each transaction. Balance of an account - the difference between the total increases and the total decreases recorded in an account. App. A

8 Normal Balances AssetsDebit LiabilitiesCredit Owner’s capitalCredit Owner’s withdrawalsDebit RevenuesCredit ExpensesDebit App. A

9 Accounting Cycle Recording (journalizing) the transactions in the general journal Posting the journal entries to the accounts in the general ledger Recording (and posting) adjusting entries Preparing the financial statements Recording (and posting) closing entries App. A

10 Recording (Journalizing) Transactions General journal - a book where information is recorded for each transaction Journalizing - the process of recording a transaction in the general journal Journal entry - the recorded information for each transaction App. A

11 Key Procedures in Journalizing Enter the month, day, and year Enter the title of the account and amount to be debited Enter the title of the account and amount to be credited Enter a brief explanation of the transaction App. A

12 Illustration of Journal Entries Date Account Titles and Explanations Acct. No. Debit Credit 2003 Dec. 15 Cash 15,000 A. Cox, Capital 15,000 Made initial investment in business 29Store Equipment2,200 Cash 1,000 Notes Payable 1,200 Purchased store equipment from Ace Equipment Company, making cash down payment and signing 3-month note App. A

13 Posting to the Accounts Posting - the process of transferring the journal entry information to the accounts in the general ledger Chart of accounts - a numbering system designed to organize a company’s accounts App. A

14 Key Procedures in Posting Locate the first account to be posted from the general journal Enter the month, day, and year of the transaction and the debit amount in the debit (left) side of the account Enter the account number in the general journal Repeat the process for the credit amount App. A

15 Illustration of Posting Process - Exhibit A-7 Date Account Titles and Explanations Acct. No. Debit Credit 2004 Jan. 2 Cash 300 Sales Revenue 300 Made cash sales CashSales RevenueNo. 101No. 401 General Ledger Bal. 7,300 1/02/ App. A

16 Trial Balance Trial balance - a schedule that lists the general ledger accounts and the balances Normally prepared at the end of the accounting period before making adjusting entries Helps to detect a journalizing or posting error App. A

17 Preparing Adjusting Entries Adjusting entries - made at the end of an accounting period to bring the company’s revenue and expense account balances up-to- date Three types of adjusting entries Apportionment of prepaid and unearned items Recording of accrued items Recording or apportionment of estimated items App. A

18 Apportionment of Prepaid and Unearned Items Prepaid item - an economic resource that will be used in the near future –the “expired” part of the resource cost must be recorded as an expense Unearned revenue - an obligation of a company to provide goods or services in the future –the “expired” part of the obligation must be recorded as a revenue App. A

19 Accrued Items Accrued expense - an expense that has been incurred but that has not been paid or recorded Accrued revenue - a revenue that has been earned but that has not been collected or recorded Adjusting entries must be made to record the accrued expenses and revenues App. A

20 Estimated Items Depreciation on buildings and equipment Amortization of intangible assets Recognition of uncollectible accounts receivable App. A

21 Adjusted Trial Balance A schedule prepared after adjusting entries to prove the equality of the debit and credit balances in the general ledger accounts Helps prevent the company from including debit and credit errors in the financial statements Makes preparing the financial statements easier App. A

22 Common Errors Found on the Adjusted Trial Balance Transposition - two digits in a number are mistakenly reversed Slide - the digits are listed in the correct order but are mistakenly moved one decimal place to the left or right App. A

23 Preparing the Financial Statements Income Statement Statement of Changes in Owner’s Equity Balance Sheet Cash Flow Statement App. A

24 Preparation of Closing Entries Closing entries are done at the end of an accounting period to: Show the current balance in the owner’s capital account Show zero balances in the revenue, expense, and withdrawals accounts Income Summary account is a temporary account used in the closing process App. A

25 Closing the Revenue Accounts A debit entry is made to each revenue account to bring the balance to zero A credit entry is made to the income summary account for the total of the revenue accounts App. A

26 Closing the Expense Accounts A credit entry is made to each expense account to bring the balance to zero A debit entry is made to the income summary account for the total of the expense accounts App. A

27 Closing the Income Summary Account The balance in the account is the net income (or net loss) An entry is made to transfer the balance in the income summary account to the owner’s equity account App. A

28 Closing the Withdrawals Account A credit entry is made to the withdrawals account to bring the balance to zero A debit entry is made to the owner’s equity account for the total of the withdrawals account App. A

29 Post-Closing Trial Balance A schedule prepared after making the closing entries to prove the equality of the debit and credit balances in the permanent accounts Only permanent accounts should have balances since all temporary accounts have zero balances due to the closing process App. A

30 Modifications for Corporations Investments by owners Distributions to owners Income taxes on the income statement Stockholders’ equity on the balance sheet App. A

31 Conclusion A company’s accounting cycle includes: recording (journalizing) transactions posting to the accounts recording and posting adjusting entries preparing the financial statements recording and posting closing entries App. A

32 Homework Problem PA-2 (2) Date Account Titles and Explanations Acct. No. Debit Credit Jan. 2Cash33,000 R. Foster, Capital33,000 To record investment by owner of cash into business. App. A

33 Homework Problem PA-2 (2) Date Account Titles and Explanations Acct. No. Debit Credit 3Land 3,000 Cash6,000 To record purchase of land and building; making cash down payment and signing mortgage for remaining balance. Building Mortgage Payable 21,000 18,000 App. A

34 Homework Problem PA-2 (2) Date Account Titles and Explanations Acct. No. Debit Credit 4Office Equipment7,000 Notes Payable7,000 To record purchase of office equipment & issuance of 1-year note. App. A

35 Homework Problem PA-2 (2) Date Account Titles and Explanations Acct. No. Debit Credit 10Office Supplies735 Cash735 To record purchase of office supplies for cash. App. A

36 Homework Problem PA-2 (2) Date Account Titles and Explanations Acct. No. Debit Credit 21Cash3,020 Tax Service Revenues3,020 To record collection of cash for services performed. App. A

37 Homework Problem PA-2 (2) Date Account Titles and Explanations Acct. No. Debit Credit 31Salary Expense1,450 Cash1,450 To record payment of employee’s salary. App. B

38 Homework Problem PA-2 (2) Date Account Titles and Explanations Acct. No. Debit Credit 31Utilities Expense88 Cash88 To record payment of January utilities. App. A

39 Homework Problem PA-2 (2) Date Account Titles and Explanations Acct. No. Debit Credit 31R. Foster, Withdrawals850 Cash850 To record withdrawal of cash by owner for personal use. App. A

40 Homework Problem PA-2 (4) Account TitlesDebitsCredits Cash$26,897 Office supplies 735 Land 3,000 Building 21,000 Office equipment 7,000 Notes Payable$ 7,000 Mortgage payable 18,000 R. Foster, capital 33,000 R. Foster, withdrawals 850 Tax service revenues 3,020 Salary expense 1,450 Utilities expense 88 Totals$61,020$61,020 FOSTER TAX SERVICES COMPANY Trial Balance January 31 App. A


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