วัฎจักรทางการบัญชี – ภาคแรก (THE ACCOUNTING CYCLE 1) Chapter 4 2

THE BASIC ACCOUNTING EQUATION สมการบัญชี: สินทรัพย์ = หนี้สิน + ส่วนของเจ้าของ Assets Liabilities Stockholders’ Equity = + resources owned by a business claims against those assets owners’ residual claim on total assets

HOW BUSINESS TRANSACTIONS AFFECT THE ACCOUNTING EQUATION Every transaction must have a dual effect on the accounting equation. Thus, if an asset is increased, there must be a corresponding: Decrease in another asset, or Increase in a liability, or Increase in stockholders’ equity

TRANSACTION IDENTIFICATION PROCESS Purchase computer Answer telephone Pay rent Is the financial position (assets, liabilities, and stockholders’ equity) of the company changed? No Yes Don’t Record Record

การวิเคราะห์รายการค้า Let’s analyze some transactions for JJ’s Lawn Care Service.

TRANSACTION ANALYSIS TRANSACTION 1 On May 1, 20XX, Jill Jones and her family invested $8,000 in JJ’s Lawn Care Service and received 800 shares of stock. Assets ₌ Liabilities ₊ Equity Cash A/R Eq Truck A/P CS R/E (1) $8,000   The asset Cash is increased $8,000 and the Common Stock is increased $8,000.

On May 1, 20XX, Jill Jones and her family invested $8,000 in JJ’s Lawn Care Service and received 800 shares of stock. 3

TRANSACTION ANALYSIS TRANSACTION 2 On May 2, JJ’s purchased a riding lawn mower for $2,500 cash. Assets ₌ Liabilities ₊ Equity Cash A/R Eq Truck A/P CS R/E old Bal $8,000   (2)  ($2,500)  $2,500 New Bal $5,500 $2,500 The asset Cash is decreased $2,500 and the asset Tool & Equipment is increased $2,500.

On May 2, JJ’s purchased a riding lawn mower for $2,500 cash. 3

TRANSACTION ANALYSIS TRANSACTION 3 On May 8, JJ’s purchased a $15,000 truck.JJ’s paid $2,000 down in cash and issued a note payable for the remaining $13,000. Assets ₌ Liabilities ₊ Equity Cash A/R Eq Truck A/P CS R/E old Bal $5,500   $2,500 $8,000 (3) New Bal

On May 8, JJ’s purchased a $15,000 truck. JJ’s paid $2,000 down in cash and issued a note payable for the remaining $13,000. 3

TRANSACTION ANALYSIS TRANSACTION 4 On May 11, JJ’s purchased some repair parts for $300 on account. Assets ₌ Liabilities ₊ Equity Cash A/R Eq Truck A/P CS R/E old Bal (4)   New Bal

On May 11, JJ’s purchased some repair parts for $300 on account.

TRANSACTION ANALYSIS TRANSACTION 5 On May 18, JJ’s was able to sell half of the repair parts for $150, a price equal to cost. JJ’s will receive the cash within 30 days. Assets ₌ Liabilities ₊ Equity Cash A/R Eq Truck A/P CS R/E old Bal (5)   New Bal

Jill realized she had purchased more repair parts than needed. On May 18, JJ’s was able to sell half of the repair parts to ABC Lawns for $150, a price equal to JJ’s cost. JJ’s will receive the cash within 30 days. 3

6.On May 25, ABC Lawns pays JJ’s $75 as a partial settlement of its accounts receivable. 3

7.On May 28, JJ’s pays $150 of its accounts payable. 3

8.On May 29, JJ’s recorded lawn care services provided during May of $750. All clients paid in cash. 3

9.On May 31, JJ’s purchased gasoline for the lawn mower and the truck for $50 cash. Now, let’s review how JJ’s transactions affected the accounting equation. 3

May 31 $21,850 = $21,850 3

These transactions impact the Statement of Cash Flows. Let’s prepare the Income Statement and Statement of Cash Flows for JJ’s Lawn Care Service for the month ending May 31, 20XX. These transactions impact the Statement of Cash Flows. These transactions impact the Income Statement. 3

Investments by and payments to the owners are not included on the Income Statement. 3

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Operating activities include the cash effects of revenue and expense transactions. 3

Investing activities include the cash effects of purchasing and selling assets. 3

Accounts are individual records showing increases and decreases. The Ledger Accounts are individual records showing increases and decreases. Cash Accounts Payable The entire group of accounts is kept together in an accounting record called a ledger. Capital Stock

Individual Liabilities THE LEDGER The general ledger contains all the assets, liabilities, and stockholders’ equity accounts for a given company Individual Assets Individual Liabilities Individual Stockholders’ Equity Equipment Interest Payable Salaries Payable Land Salaries Payable Fees Earned Supplies Accounts Payable Common Stock Cash Notes Payable Retained Earnings

THE ACCOUNT An account is an individual record of increases and decreases in a specific asset, liability, or owner’s equity item. Commonly referred to as “T-Accounts.” Left or debit side Title of Account Right or credit side Debit balance Credit balance

The Use of Accounts Increases are recorded on one side of the T-account, and decreases are recorded on the other side. Title of Account Left or Debit Side Right or Credit Side

Assets Liabilities Equity DOUBLE-ENTRY SYSTEM In a double-entry system, equal debits and credits are made in the accounts for each transaction. Thus, the accounting equation will always stay in balance. Assets Liabilities Equity

Debits and credits affect accounts as follows: Debit and Credit Rules Debits and credits affect accounts as follows: A = L + OE ASSETS Debit for Increase Credit for Decrease LIABILITIES Debit for Decrease Credit for Increase EQUITIES Debit for Decrease Credit for Increase 13

Double Entry AccountingThe Equality of Debits and Credits A = L + OE = Debit balances Credit balances In the double-entry accounting system, every transaction is recorded by equal dollar amounts of debits and credits. 13

Debits Credits DEBIT & CREDIT EFFECTS ON ASSETS & LIABILITIES Increase assets Decrease assets Decrease liabilities Increase liabilities

Debits Credits DEBIT & CREDIT EFFECTS ON STOCKHOLDERS’ EQUITY COMMON STOCK/RETAINED EARNINGS Debits Credits Decrease equity Increase equity

A = L + OE What is Net Income? Net income is not an asset it’s an increase in owners’ equity from profits of the business. A = L + OE Increase Decrease Increase Either (or both) of these effects occur as net income is earned . . . . . . but this is what “net income” really means. 3

A = L + OE Retained Earnings Capital Stock Retained Earnings-Revenues -Expenses The balance in the Retained Earnings account represents the total net income of the corporation over the entire lifetime of the business, less all amounts which have been distributed to the stockholders as dividends. 3

Debits Credits DEBIT & CREDIT EFFECTS ON REVENUES & EXPENSES Decrease revenues Increase revenues Increase expenses Decrease expenses

Debits and Credits for Revenue and Expense Expenses decrease owner’s equity. Revenues increase owner’s equity. EQUITIES Debit for Decrease Credit for Increase EXPENSES Credit for Decrease Debit for Increase REVENUES Debit for Decrease Credit for Increase

Investments by and Payments to Owners Payments to owners decrease owners’ equity. Owners’ investments increase owners’ equity. EQUITIES Debit for Decrease Credit for Increase CAPITAL STOCK Debit for Decrease Credit for Increase DIVIDENDS Debit for Increase Credit for Decrease

EXPANDED ACCOUNTING EQUATION Assets Liabilities Stockholders’ Equity = + Assets Dr. Cr. + - Liabilities Dr. Cr. - + Dr. Cr. Common Stock - + Dr. Cr. Dividends + - = + - Dr. Cr. Revenues - + Dr. Cr. Expenses + - + -

CHART OF ACCOUNTS Most companies have a chart of accounts that lists the accounts and the account numbers which identify their location in the ledger.

Chart of Account ผังบัญชี : ตัวอย่าง สินทรัพย์ เลขประจำกลุ่มเป็นเลข 1 หนี้สิน เลขประจำกลุ่มเป็นเลข 2 ส่วนของเจ้าของ เลขประจำกลุ่มเป็นเลข 3 รายได้ เลขประจำกลุ่มเป็นเลข 4 ค่าใช้จ่าย เลขประจำกลุ่มเป็นเลข 5

CHART OF ACCOUNTS ตัวอย่างผังบัญชี

Let’s record selected transactions for JJ’s Lawn Care Service in the accounts. 9

Will Capital Stock increase or decrease? May 1: Jill Jones and her family invested $8,000 in JJ’s Lawn Care Service and received 800 shares of stock. Will Capital Stock increase or decrease? Will Cash increase or decrease? 3

Cash increases $8,000 with a debit. May 1: Jill Jones and her family invested $8,000 in JJ’s Lawn Care Service and received 800 shares of stock. Cash increases $8,000 with a debit. Capital Stock increases $8,000 with a credit. 3

May 2: JJ’s purchased a riding lawn mower for $2,500 cash. Will Tools & Equipment increase or decrease? Will Cash increase or decrease? 3

May 2: JJ’s purchased a riding lawn mower for $2,500 cash. Cash decreases $2,500 with a credit. Tools & Equipment increases $2,500 with a debit. 3

Truck increases $15,000 with a debit. May 8: JJ’s purchased a $15,000 truck. JJ’s paid $2,000 down in cash and issued a note payable for the remaining $13,000. Truck increases $15,000 with a debit. Cash decreases $2,000 with a credit. Notes Payable increases $13,000 with a credit. 3

May 11: JJ’s purchased some repair parts for $300 on account. Tools & Equipment increases $300 with a debit. Accounts Payable increases $300 with a credit. 3

Tools & Equipment decreases $150 with a credit. May 18: JJ’s sold half of the repair parts to ABC Lawns for $150, a price equal to JJ’s cost. ABC Lawns agrees to pay JJ’s within 30 days. Tools & Equipment decreases $150 with a credit. Accounts Receivable increases $150 with a debit. 3

We will also analyze a dividend transaction. Let’s analyze the revenue, and expense transactions for JJ’s Lawn Care Service for the month of May. We will also analyze a dividend transaction. 9

Cash increases $750 with a debit. May 29: JJ’s provided lawn care services for a client and received $750 in cash. Cash increases $750 with a debit. Sales Revenue increases $750 with a credit. 3

Cash decreases $50 with a credit. May 31: JJ’s purchased gasoline for the lawn mower and the truck for $50 cash. Cash decreases $50 with a credit. Gasoline Expense increases $50 with a debit. 3

May 31: JJ’s Lawn Care paid Jill Jones and her family a $200 dividend. Cash decreases $200 with a credit. Dividends increase $200 with a debit. 3

Now, let’s look at the Trial Balance for JJ’s Lawn Care Service for the month of May. 9

Proves equality of debits and credits. All balances are taken from the ledger accounts on May 31 after considering all of JJ’s transactions for the month. Proves equality of debits and credits. 4

Understanding the Recording Process JOURNAL JOURNAL LEDGER 1. Analyze each transaction 2. Enter transactions in a journal 3. Transfer journal information to the ledgers

JOURNALS Transactions are initially recorded in chronological order in a journal before being transferred to the accounts. The journal records the complete effect of each transactions, making errors easy to locate Every company has a general journal which contains Transaction dates Account titles References Two amount columns

The Journal 4

POSTING Posting is the process of transferring entries from the journals to specific accounts in the General Ledger GENERAL LEDGER GENERAL JOURNAL J1 Date Account Titles and Explanation Ref. Debit Credit

Posting Journal Entries to the Ledger Accounts 4

Posting Journal Entries to the Ledger Accounts 4

The Accounting Cycle Journalize transactions. Post entries to the ledger accounts. Prepare trial balance. Make end-of-year adjustments. Prepare adjusted trial balance. Prepare financial statements. Prepare after closing trial balance. Journalize and post closing entries. 3

End of Chapter 4 4