1. Chapter 2

2. Explain accounts, journals, and ledgers as they relate to recording transactions and describe common accounts 2Copyright (c) 2009 Prentice Hall. All rights reserved.

3. Record Transactions in the Journal Copy (post) to the Ledger Prepare the Trial Balance 3

4.  Basic summary device  Detailed record of increases and decreases in specific assets, liabilities, or owner’s equity during a period 4Copyright (c) 2009 Prentice Hall. All rights reserved.

5.  Journal ◦ Chronological record of transactions ◦ Organized by date  Ledger ◦ Book (or computer record) of all account activity ◦ Organized by account 5Copyright (c) 2009 Prentice Hall. All rights reserved.

6.  Listing of all accounts and their balances 6Copyright (c) 2009 Prentice Hall. All rights reserved.

7. Accounts are grouped in 3 broad categories: 7 Liabilities Owner’s equity Owner’s equity Assets =+ Copyright (c) 2009 Prentice Hall. All rights reserved.

8. Economic resources that will benefit the business in the future  Cash  Accounts receivable  Notes receivable  Prepaid expenses  Land  Building  Equipment, Furniture, Fixtures 8Copyright (c) 2009 Prentice Hall. All rights reserved.

9. Creditors’ claims to assets (debt)  Accounts payable  Notes payable  Accrued liabilities 9Copyright (c) 2009 Prentice Hall. All rights reserved.

10. Owner’s claim to the assets  Capital ◦ Net worth invested by the owner  Withdrawals ◦ Owner takes business assets for personal use  Revenues  Expenses 10Copyright (c) 2009 Prentice Hall. All rights reserved.

11. 11 Ledger Cash All Individual Accounts Combined Make Up the Ledger Accounts payable Common stock Asset accounts Liability accounts Equity accounts

12.  List of all accounts used by a company along with the account numbers 12 Acct. #Account title 101Cash 111Accounts receivable 150Equipment 201Accounts payable 301Common stock 305Retained earnings 401Service revenue 501Rent expense 525Advertising expense Copyright (c) 2009 Prentice Hall. All rights reserved.

13. 13 Define debits, credits, and normal account balances. Use double entry accounting and T-accounts. Copyright (c) 2009 Prentice Hall. All rights reserved.

14.  Record dual effects of each transaction  Each transaction has a: ◦ Receiving side ◦ Giving side  Examples: ◦ Company purchases supplies (receiving) with cash (giving) 14Copyright (c) 2009 Prentice Hall. All rights reserved.

15. 15 Simple tool for analyzing and determining the balance in a given account Account Name (Left Side) Debit (Right Side) Credit Abbreviated dr Abbreviated cr Copyright (c) 2009 Prentice Hall. All rights reserved.

16.  Whether an account is increased by debit or a credit is determined by the account type ◦ Asset, liability, or equity  Debits are not good or bad ◦ Neither are credits 16Copyright (c) 2009 Prentice Hall. All rights reserved.

17. 17 Debit Credit Assets + - + - LiabilitiesOwner’sequity=+ Debit Credit - + - + Debit Credit - + - + Copyright (c) 2009 Prentice Hall. All rights reserved.

18. 18 LiabilitiesEquityAssets=+ Debit Credit + - Debit Credit - + Debit Credit - + NormalBalanceNormalBalanceNormalBalance Copyright (c) 2009 Prentice Hall. All rights reserved.

19. 19Revenues - + - + Debit Credit Owner’s Capital Debit Credit - + - + Withdrawals Debit Credit + - + - Expenses Debit Credit + - + - Copyright (c) 2009 Prentice Hall. All rights reserved.

20. 20 Owner’s equity Debit Credit - + NormalBalance Owner’s Capital __ __ Debit Credit ++ + - Debit Credit - + NormalBalanceNormalBalance RevenuesRevenues ExpensesExpenses WithdrawalsWithdrawals + - NormalBalance Copyright (c) 2009 Prentice Hall. All rights reserved.

21.  Assets  Withdrawals  Expenses  Liabilities  Capital  Revenues 21 This indicates the normal balance of each account group. The normal balance is also what increases the account. Copyright (c) 2009 Prentice Hall. All rights reserved.

22. 22 Cash $20,000 $12,000 $8,000 Copyright (c) 2009 Prentice Hall. All rights reserved.

23. List the steps of the transactions to the ledger 23Copyright (c) 2009 Prentice Hall. All rights reserved.

24. Identify each account affected and its type Determine if each account is increased or decreased Record transaction in the journal 24 Use the rules of debit and credit Copyright (c) 2009 Prentice Hall. All rights reserved.

25.  Four parts: ◦ Date of transaction ◦ Title of account debited with dollar amount ◦ Title of account credited with dollar amount ◦ Brief explanation of transaction 25Copyright (c) 2009 Prentice Hall. All rights reserved.

26. 26 Journal Page 1 DateDescriptionDebitCredit Jul 1Cash45,000 Josie Smith, Capital45,000 Owner investment Accounts Affected Dollar amount of debits and credits Explanation of transaction Transaction Date Copyright (c) 2009 Prentice Hall. All rights reserved.

27.  Copying amounts from the journal to the ledger 27Copyright (c) 2009 Prentice Hall. All rights reserved.

28. March 22:  “On account” indicates Accounts receivable  Accounts receivable is an asset account  Increase an asset with a debit 28 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Mar22Accounts receivable4,000 Copyright (c) 2009 Prentice Hall. All rights reserved.

29. March 22:  “Performed services” indicates revenue has been earned  Revenues are increased by credits 29 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Mar22Accounts receivable4,000 Service revenue4,000 Performed services on account Copyright (c) 2009 Prentice Hall. All rights reserved.

30. March 30:  Cash is received ◦ Increase cash, an asset ◦ Assets are increased by debits  The payment is “on account” ◦ Decrease Accounts receivable with a credit 30 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Accounts receivable3,000 Received payment on account Mar 30 Cash3,000 Copyright (c) 2009 Prentice Hall. All rights reserved.

31. March 31:  A utility bill is an expense ◦ Expenses are increased by debits  The bill will be paid later – creating an account payable ◦ Liabilities are increase by credits 31 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Received utility bill Mar 31Utilities expense130 Accounts payable130 Copyright (c) 2009 Prentice Hall. All rights reserved.

32. March 31:  Salaries to employees are an expense ◦ Expenses are increased by debits  The salary was paid in cash ◦ Cash, an asset, decreases ◦ Assets are decreased by credits  Rent Expense is an expense account  Increase an expense with a debit 32 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Cash2,300 Paid salaries Mar31Salaries expense2,300 Copyright (c) 2009 Prentice Hall. All rights reserved.

33. March 31:  Advertising is another expense  Cash is paid 33 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Mar31Advertising expense400 Cash400 Paid advertising Copyright (c) 2009 Prentice Hall. All rights reserved.

34.  Origin of accounting transactions  Examples: ◦ Bank deposit tickets ◦ Invoices ◦ Checks ◦ Stock certificates 34Copyright (c) 2009 Prentice Hall. All rights reserved.

35. Journalize and post sample transactions to the ledger 35Copyright (c) 2009 Prentice Hall. All rights reserved.

36. 36 CashService revenue Accounts receivable GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Accounts receivable9,000 Service revenue9,000 Performed legal services on account Copyright (c) 2009 Prentice Hall. All rights reserved.

37. 37 CashService revenue Accounts receivable GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Accounts receivable9,000 Service revenue9,000 Performed legal services on account 9,000 Copyright (c) 2009 Prentice Hall. All rights reserved.

38. 38 CashService revenue Accounts receivable GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Cash5,400 Accounts receivable5,400 Received payment on account 9,000 Copyright (c) 2009 Prentice Hall. All rights reserved.

39. 39 CashService revenue Accounts receivable GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Cash5,400 Accounts receivable5,400 Received payment on account 9,000 5,400 3,600 Copyright (c) 2009 Prentice Hall. All rights reserved.

40. Prepare the trial balance from the T-Accounts 40Copyright (c) 2009 Prentice Hall. All rights reserved.

41.  Summary of the ledger  Lists all accounts with their balances  Accuracy check ◦ Debits should equal credits  NOT a balance sheet 41Copyright (c) 2009 Prentice Hall. All rights reserved.

42.  Search for missing account  Divide the difference between debits and credits by two ◦ Is there a debit/credit balance for this amount posted in the wrong column?  Divide out of balance amount by nine ◦ Slide – Adding or dropping a zero ($100 instead of $1,,000) ◦ Transposition – inverting two digits ($459 instead of $495) 42Copyright (c) 2009 Prentice Hall. All rights reserved.

43. 43 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Jan2Cash1,000 Josie Smith, Capital1,000 Date of transaction Accounts debited and credited Amounts debited and credited Posting reference Copyright (c) 2009 Prentice Hall. All rights reserved.

44. 44 GENERAL JOURNAL Page 1 DATEDESCRIPTION POST REF DEBITCREDIT Jan2Cash1011,000 Josie Smith, Capital3011,000 Cash Account No. 101 DateJrnl. Ref.DebitDateJrnl. Ref.Credit 2-JanJ.1.1,000 Josie Smith, Capital Account No. 301 DateJrnl. Ref.DebitDateJrnl. Ref.Credit 2-JanJ.1.1,000 1 1 5 5 4 4 3 3 2 2 Copyright (c) 2009 Prentice Hall. All rights reserved.

45. 45 CASH Acct No. 101 Balance DateItem Jrnl RefDebitCreditDebitCredit 1-Apr J.120,000 3-Apr J.1 9,00011,000 5-Apr J.13,000 14,000 6-Apr J.1 10,0004,000 Alternative to the T-Account Copyright (c) 2009 Prentice Hall. All rights reserved.