Accounting 1 MGT 130

Lecture 04 Chapter 02 Analyzing Transactions

Lecture 03 overview

Cash Left side debit Right side credit

850 1, ,900 Cash 3,750 4,300 2,900 10,950 5,850 5,100

Transactions and Balance Sheet Accounts

Debits Credits Asset accounts……….Increase (+)Decrease (-) Liability accounts……Decrease (-)Increase (+) Owner’s equity (capital) accounts….Decrease (-)Increase (+) Rules of Debit / Credit Balance Sheet Accounts

Debits Credits Revenue accounts……Decrease (-)Increase (+) Expense accounts……Increase (+)Decrease (-) Income Statement Accounts

“ Double-entry accounting is based on a simple concept: each party in a business transaction will receive something and give something in return. In bookkeeping terms, what is received is a debit and what is given is a credit. The T account is a representation of a scale or balance.” Scale or Balance T account Left Side Receive DEBIT Right Side Give CREDIT

Increase (Normal Balances) Decreases Balance sheet accounts: AssetDebitCredit LiabilityCreditDebit Owner’s Equity: Capital CreditDebit DrawingDebitCredit Income statement accounts: RevenueCreditDebit ExpenseDebitCredit Normal Balances of Accounts

1.Determine whether an asset, a liability, owner’s equity, revenue, or expense account is affected by the transaction. 2.For each account affected by the transaction, determine whether the account increases or decreases. 3.Determine whether each increase or decrease should be recorded as a debit or a credit.

Journalizing and Posting

Post. Ref. JOURNAL DateDescriptionDebitCredit Dec Prepaid Insurance2 400 Cash2 400 Paid premium on two-year policy.

Cash Nov. Capital Nov 18 Fees 7500 Nov 5 Land Nov. Exp 3650 Nov.30 A/P 950 Dec. 1 Pre Ins 2400 Prepaid Insurance Dec 1. Cash 2400 Effects of this entry in the Ledger

1 Rent Expense800 Cash800 Paid rent for December.

Cash Nov. Capital Nov 18 Fees 7500 Nov 5 Land Nov. Exp 3650 Nov.30 A/P 950 Dec. 1 Pre Ins 2400 Dec. 1 Rent 800 Rent Expense Dec 1. Cash 800 Effects of this entry in the Ledger

1 Cash360 Unearned Rent360 Received advanced payment For three months’ rent of land.

Cash Nov. Capital Nov 18 Fees 7500 Dec 1. Rent 360 Nov 5 Land Nov. Exp 3650 Nov.30 A/P 950 Dec. 1 Pre Ins 2400 Dec. 1 Rent 800 Rent Dec 1. Cash 800 Effects of this entry in the Ledger

4 Office Equipment1 800 Accounts Payable1 800 Purchased office equipment on account.

Furniture Dec 4. A/P 1800 Effects of this entry in the Ledger Accounts Payable Nov. Cash 950Nov 10. Supplies 1350 Dec 4. Furniture 1800

6 Miscellaneous Expense180 Cash180 Paid for newspaper ad.

Cash Nov. Capital Nov 18 Fees 7500 Dec 1. Rent 360 Nov 5 Land Nov. Exp 3650 Nov.30 A/P 950 Dec. 1 Pre Ins 2400 Dec. 1 Rent 800 Dec. 6 Misc 180 Effects of this entry in the Ledger Misc Nov. Cash 275 Dec 6. Cash 180

11 Accounts Payable21400 Cash11400 Paid creditors on account.

Cash Nov. Capital Nov 18 Fees 7500 Dec 1. Rent 360 Nov 5 Land Nov. Exp 3650 Nov.30 A/P 950 Dec. 1 Pre Ins 2400 Dec. 1 Rent 800 Dec. 6 Misc 180 Dec. 11 A/P 400 Effects of this entry in the Ledger Accounts Payable Nov.30 Cash 950 Dec.11 Cash 400 Nov 10. Supplies 1350 Dec 4. Furniture 1800

Post. Ref. JOURNAL DateDescriptionDebitCredit Dec Wages Expense950 Cash950 Paid two week’s wages.

Cash Nov. Capital Nov 18 Fees 7500 Dec 1. Rent 360 Nov 5 Land Nov. Exp 3650 Nov.30 A/P 950 Dec. 1 Pre Ins 2400 Dec. 1 Rent 800 Dec.6 Misc 180 Dec.11 A/P 400 Dec.13 wages 950 Effects of this entry in the Ledger Wages Expense Nov. 30 Cash 2125 Dec.13 Cash 950

16 Cash3 100 Fees Earned3 100 Received fees from customers.

Cash Nov. Capital Nov 18 Fees 7500 Dec 1. Rent 360 Dec 16. Fees 3100 Nov 5 Land Nov. Exp 3650 Nov.30 A/P 950 Dec. 1 Pre Ins 2400 Dec. 1 Rent 800 Dec.6 Misc 180 Dec.11 A/P 400 Dec.13 wages 950 Effects of this entry in the Ledger Fees Earned Nov 18. Cash 7500 Dec 16. Cash 3100

16 Accounts Receivable1 750 Fees Earned1 750 Received fees from customers.

Effects of this entry in the Ledger Account Receivable Dec 16. Fees 1750 Fees Earned Nov 18. Cash 7500 Dec 16. A/R 1750

20 Accounts Payable900 Cash900 Paid part of amount owed to Executive Supply Co.

Cash Nov. Capital Nov 18 Fees 7500 Dec 1. Rent 360 Dec 16. Fees 3100 Nov 5 Land Nov. Exp 3650 Nov.30 A/P 950 Dec. 1 Pre Ins 2400 Dec. 1 Rent 800 Dec.6 Misc 180 Dec.11 A/P 400 Dec.13 wages 950 Dec 20. A/P 900 Effects of this entry in the Ledger Accounts Payable Nov.30 Cash 950 Dec.11 Cash 400 Dec. 20. Cash 900 Nov 10. Supplies 1350 Dec 4. Furniture 1800

21 Cash650 Accounts Receivable650 Received cash from customer on account.

Cash Nov. Capital Nov 18 Fees 7500 Dec 1. Rent 360 Dec 16. Fees 3100 Dec 21. A/R 650 Nov 5 Land Nov. Exp 3650 Nov.30 A/P 950 Dec. 1 Pre Ins 2400 Dec. 1 Rent 800 Dec.6 Misc 180 Dec.11 A/P 400 Dec.13 wages 950 Dec 20. A/P 900 Effects of this entry in the Ledger Account Receivable Dec 16. Fees 1750Dec 21. Cash 650

23 Supplies1 450 Cash1 450 Purchased supplies.

Cash Nov. Capital Nov 18 Fees 7500 Dec 1. Rent 360 Dec 16. Fees 3100 Dec 21. A/R 650 Nov 5 Land Nov. Exp 3650 Nov.30 A/P 950 Dec. 1 Pre Ins 2400 Dec. 1 Rent 800 Dec.6 Misc 180 Dec.11 A/P 400 Dec.13 wages 950 Dec 20. A/P 900 Dec 23. A/P 1450 Effects of this entry in the Ledger Supplies Nov 10. A/P 1350 Dec 23. Cash 1450 Nov 30. S.EXP 800

27 Wages Expense1 200 Cash1 200 Paid two weeks’ wages.

Cash Nov. Capital Nov 18 Fees 7500 Dec 1. Rent 360 Dec 16. Fees 3100 Dec 21. A/R 650 Nov 5 Land Nov. Exp 3650 Nov.30 A/P 950 Dec. 1 Pre Ins 2400 Dec. 1 Rent 800 Dec.6 Misc 180 Dec.11 A/P 400 Dec.13 wages 950 Dec 20. A/P 900 Dec 23. A/P 1450 Dec 27. wages 1200 Effects of this entry in the Ledger Wages Expense Nov. 30 Cash 2125 Dec.13 Cash 950 Dec 27. wages 1200

31 Utilities Expense310 Cash310 Paid telephone bill.

Cash Nov. Capital Nov 18 Fees 7500 Dec 1. Rent 360 Dec 16. Fees 3100 Dec 21. A/R 650 Nov 5 Land Nov. Exp 3650 Nov.30 A/P 950 Dec. 1 Pre Ins 2400 Dec. 1 Rent 800 Dec.6 Misc 180 Dec.11 A/P 400 Dec.13 wages 950 Dec 20. A/P 900 Dec 23. A/P 1450 Dec 27. wages 1200 Dec 31. utilities 310 Effects of this entry in the Ledger Utilities Nov 30. Cash 450 Dec 31. Cash 310

Post. Ref. JOURNAL DateDescriptionDebitCredit Dec Utilities Expense225 Cash225 Paid utility bill.

Cash Nov 01. Capital Nov 18 Fees 7500 Dec 1. Rent 360 Dec 16. Fees 3100 Dec 21. A/R 650 Nov 5 Land Nov. Exp 3650 Nov.30 A/P 950 Dec. 1 Pre Ins 2400 Dec. 1 Rent 800 Dec.6 Misc 180 Dec.11 A/P 400 Dec.13 wages 950 Dec 20. A/P 900 Dec 23. A/P 1450 Dec 27. wages 1200 Dec 31. utilities 310 Dec 31. utilities 225 Effects of this entry in the Ledger Utilities Nov 30. Cash 450 Dec 31. Cash 310 Dec 31. Cash 225

31 Cash2 870 Fees Earned2 870 Received fees from customers.

Cash Nov 01. Capital Nov 18 Fees 7500 Dec 1. Rent 360 Dec 16. Fees 3100 Dec 21. A/R 650 Dec 31. Fees 2870 Nov 5 Land Nov. Exp 3650 Nov.30 A/P 950 Dec. 1 Pre Ins 2400 Dec. 1 Rent 800 Dec.6 Misc 180 Dec.11 A/P 400 Dec.13 wages 950 Dec 20. A/P 900 Dec 23. A/P 1450 Dec 27. wages 1200 Dec 31. utilities 310 Dec 31. utilities 225 Effects of this entry in the Ledger Fees Earned Nov 18. Cash 7500 Dec 16. A/R 1750 Dec 31. Cash 2870

31 Accounts Receivable1 120 Fees Earned1 120 Recorded fees earned on account.

Effects of this entry in the Ledger Fees Earned Nov 18. Cash 7500 Dec 16. A/R 1750 Dec 31. Cash 2870 Dec 31. A/R 1120 Account Receivable Dec 16. Fees 1750 Dec 31. Fees 1120 Dec 21. Cash 650

31 Javid Iqbal, Drawing2 000 Cash2 000 Javid Iqbal withdrew cash for personal use.

Cash Nov 01. Capital Nov 18 Fees 7500 Dec 1. Rent 360 Dec 16. Fees 3100 Dec 21. A/R 650 Dec 31. Fees 2870 Nov 5 Land Nov. Exp 3650 Nov.30 A/P 950 Dec. 1 Pre Ins 2400 Dec. 1 Rent 800 Dec.6 Misc 180 Dec.11 A/P 400 Dec.13 wages 950 Dec 20. A/P 900 Dec 23. A/P 1450 Dec 27. wages 1200 Dec 31. utilities 310 Dec 31. utilities 225 Dec 31.Drawings 2000 Effects of this entry in the Ledger Javid Iqbal Drawings Nov 30. Cash 2000 Dec 31. Cash 2000

Cash Nov 01. Capital Nov 18 Fees 7500 Dec 1. Rent 360 Dec 16. Fees 3100 Dec 21. A/R 650 Dec 31. Fees 2870 Nov 5 Land Nov. Exp 3650 Nov.30 A/P 950 Dec. 1 Pre Ins 2400 Dec. 1 Rent 800 Dec.6 Misc 180 Dec.11 A/P 400 Dec.13 wages 950 Dec 20. A/P 900 Dec 23. A/P 1450 Dec 27. wages 1200 Dec 31. utilities 310 Dec 31. utilities 225 Dec 31.Drawings 2000 Balance 2065 total 39480Total Javid Iqbal Drawings Nov 30. Cash 2000 Dec 31. Cash 2000 Balance 4000 Total 4000 Fees Earned Balance Nov 18. Cash 7500 Dec 16. A/R 1750 Dec 31. Cash 2870 Dec 31. A/R 1120 Total Account Receivable Dec 16. Fees 1750 Dec 31. Fees 1120 Dec 21. Cash 650 Balance 2220 Total 2870 total 2870

Utilities Nov 30. Cash 450 Dec 31. Cash 310 Dec 31. Cash 225Balance 985 Wages Expense Nov. 30 Cash 2125 Dec.13 Cash 950 Dec 27. wages 1200Balance 4275 Supplies Nov 10. A/P 1350 Dec 23. Cash 1450 Nov 30. S.EXP 800 Balance 2000 Accounts Payable Nov.30 Cash 950 Dec.11 Cash 400 Dec. 20. Cash 900 Nov 10. Supplies 1350 Dec 4. Furniture 1800 Balance 900 Misc Nov. Cash 275 Dec 6. Cash 180 Furniture Dec 4. A/P 1800Balance 1800 Total Total 4275 Total 3150 Total 1800 Total 985 Total 2800

Unearned Rent Balance 800 Dec 1. Cash 800 Rent Expense Dec 1. Cash 800 Balance 800 Prepaid Insurance Dec 1. Cash 2400 Balance 2400 Supplies Expenses Nov 30. Supplies 800Balance 800 Land Balance Nov 5 Cash Capital Balance 25000Nov 1 Cash Total 800 Total 2400 Total Total 800 Total 25000

Lecture Review Transactions Rules of Dr and Cr Journalizing Posting into Ledgers Balancing the Ledger Accounts

End of Lecture 04

Trial Balance

Cash2 065 Accounts Receivable2 220 Supplies2 000 Prepaid Insurance2 400 Land Office Equipment1 800 Accounts Payable900 Unearned Rent360 Javid Iqbal, Capital Javid Iqbal, Drawing4 000 Fees Earned Wages Expense4 275 Rent Expense1 600 Utilities Expense985 Supplies Expense800 Miscellaneous Expense

Cash2 065 Accounts Receivable2 220 Supplies2 000 Prepaid Insurance2 400 Land Office Equipment1 800 Accounts Payable900 Unearned Rent360 Javid Iqbal, Capital Javid Iqbal, Drawing4 000 Fees Earned Wages Expense4 275 Rent Expense1 600 Utilities Expense985 Supplies Expense800 Miscellaneous Expense Balance Sheet Items

Cash2 065 Accounts Receivable2 220 Supplies2 000 Prepaid Insurance2 400 Land Office Equipment1 800 Accounts Payable900 Unearned Rent360 Javid Iqbal, Capital Javid Iqbal, Drawing4 000 Fees Earned Wages Expense4 275 Rent Expense1 600 Utilities Expense985 Supplies Expense800 Miscellaneous Expense Statement of Owner’s Equity Item

Cash2 065 Accounts Receivable2 220 Supplies2 000 Prepaid Insurance2 400 Land Office Equipment1 800 Accounts Payable900 Unearned Rent360 Javid Iqbal, Capital Javid Iqbal, Drawing4 000 Fees Earned Wages Expense4 275 Rent Expense1 600 Utilities Expense985 Supplies Expense800 Miscellaneous Expense Income Statement Items

1.Failure to record a transaction or to post a transaction. 2.Recording the same erroneous amount for both the debit and the credit parts of a transaction. 3.Recording the same transaction more than once. 4.Posting a part of a transaction correctly as a debit or credit but to the wrong account. Errors that will not cause the trial balance to be unequal:

Error Correction Procedure 1.Journal entry is incorrectDraw a line through the error but not posted.and insert correct title or amount. Error Correction Procedure Correction of Errors

Error Correction Procedure 1.Journal entry is incorrectDraw a line through the error but not posted.and insert correct title or amount. Error Correction Procedure 2.Journal entry is correctDraw a line through the but posted incorrectly.posted error and post correctly. Correction of Errors

Error Correction Procedure 3.Journal entry is incorrectJournalize and post a and postedcorrecting entry. Correction of Errors

DateDescriptionDebitCredit May 5Office Equipment12,500 Supplies12,500 Journal – As recorded and posted On May 5, a purchase of office equipment on account was incorrectly journalized and posted as shown. DateDescriptionDebitCredit May 5Supplies 12,500 Accounts Payable 12,500

J Holmes, Attorney-at-Law Income Statement For the Year Ended December 31, 2010 and 2011 Increase (Decrease) Amount Percent Fees earnedRs.187,500Rs.150,000 Rs.37, % Operating expenses: Wages expense 60,000 45,00015, % Rent expense15,00012,0003, % Utilities expense12,5009,0003, % Supplies expense2,7003,000(300)(10.0)% Misc. expense 2,300 1, % Total operating expenses 92,500 70,80021, % Net income 95,000 79,20015, %

The End